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1 

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1 


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i^^ 


<^7/. 


The  Bargain  Theory 
of  Wages 


A  Critical  Development  Lorn  the  Historic 
Theories,  together  with  an  Examination  of 
certain  Wages  Factors  :  the  MobiHty  of 
Labor,  Trade  Unionism,  and  the  Methods 
of  Industrial  Remuneration 


By 


John  Davidson,  M.A,  D.  Phil.  (Edin.) 

Professor  of  Political   Economy  in  the  University  of 
New  Brunswick 


New  York  and  London 
G.  P.  Putnam's  Sons 

^t  Unichcrbocker  |re8s 
1898 


PIL 


CI 


13G202 


"AWL'-lOt-i 


/ 


Copyright,  1898 

BV 

G.  P.  PUTNAM'S  SONS 
Entered  at  Stationers'  Hall,  London 


Ube  "fcnkfccrboclicr  prc60,  mew  tfork 


*i!ii^ 


■"iW^' 


PREFACE. 


SOMETHING  like  an  apology  seems  due  from  a 
writer  who  ventures  to  add  an  essay  on  the 
Wages  Question  to  the  already  enormous  number 
of  essays  and  treatises  on  that  well-worn  subject ; 
but  the  writer  has  found  the  lack,  for  the  purposes 
of  teaching  advanced  students,  of  such  a  book  as 
he  has  endeavored  to  prepare.  There  is  no  treatise 
presenting  in  a  fairly  compact  form  the  problems 
of  wages  which  it  seems  desirable  to  bring  before 
the  attention  of  such  students.  The  systematic 
treatises  and  text-books  in  economics  necessarily 
give  but  scant  treatment  to  the  problem  of  the 
evolution  of  the  theory  of  wages;  and  the  mon- 
ographs on  the  wages  question  are,  in  general,  too 
polemical  and  one-sided  to  be  suited  even  for  ad- 
vanced class  work. 

The  present  essay  is  the  outcome  of  the  attempts 
of  the  writer,  during  five  years,  to  analyze  the  wages 
question,  historically  as  well  as  theoretically.  He 
began  with  the  theory  presented  by  the  late  Presi- 
dent Walker  in  his  Wages  Question^  but  was  soon 
forced  to  give  as  a  supplement  an  exposition  of  the 

jii 


iv 


Preface. 


history  of  wages  theory  ;  and  gradually  came  to  find 
that  the  theories  were  not  mutually  antagonistic  but, 
in  a  sense,  complementary.  A  study  of  the  Aus- 
trian theory  of  value  showed  him  how  it  was  possible 
to  reconcile  these  divergent  theories  ;  and  The  Bar- 
gain Theory  of  Wages  is  the  result. 

The  comparative  absence  of  references  is  in  part 
due  to  the  fact  that  quotations,  etc.,  were  inserted 
in  his  lecture  notes  during  vacation  study,  and  that 
he  had  no  opportunity  at  the  time  of  writing  to 
verify  them.  He  has,  therefore,  judged  it  best  to 
omit  such  references  as  he  could  not  verify.  The 
woes  of  a  scholar  in  exile  he  had  better  keep  to  him- 
self; but  the  inadequacy  of  the  historical  parts  of 
the  essay,  of  which  the  writer  is  fully  conscious,  may 
be  partly  excused  in  one  who  is  some  four  hundred 
miles  from  any  library  even  half  as  good  as  his  own. 

My  obligation  to  Prof.  Taussig's  Wages  and  Capi- 
tal in  the  chapter  on  the  Wages  Fund,  and  generally 
to  Mr.  Cannan's  Production  and  Distribution,  and  to 
Dr.  Smart's  Studies  in  Economics^  is  great  and  obvi- 
ous; and  I  owe  many  obligations  which  it  is  not 
possible  so  definitely  to  acknowledge.  Acknowledg- 
ment is  due  to  the  courtesy  of  many  correspondents, 
personally  unknown,  who  have  taken  much  trouble 
in  obtaining  information  for  me ;  and  in  particular 
to  Mr.  Ochiltree  Macdonald  and  the  Hon.  Robert 
Drummond  of  Nova  Scotia ;  to  Mr.  Stavart  of  St. 
John's,  Newfoundland ;  to  Miss  Jean  Davidson  of 
Edinburgh  ;  to  Prof.  Nicholson,  who  read  the  essay 
in  manuscript  and  by  many  helpful  suggestions  en- 


Preface.  \ 

abled  mc  to  correct  some  of  the  disadvantages  of 
isolation  ;  to  my  colleague,  Prof.  Stockley,  for  assist- 
ance  in  preparing  the  manuscript  for  the  press;  and 
to  my  wife,  who  drafted  the  diagrams  and  assisted 
in  the  preparation  of  the  index. 

The  University  of  New  Hrunswick, 

Frcdericton,  N.  B.,  December,  iSgy. 


m 


CONTENTS. 


CHAPTKR  I. 

The  Subsistence  Theory    . 

CHAPTER   II. 

The  Wages-Fund  Theory  . 

CHAPTER   III. 

The  Productivity-of-Lauor  'I'hkory 

CHAPTER   IV. 

The  Bargain  Theory  of  Wages 

•  •  • 

CHAPTER  V. 
The  Mobility  of  Labor 

*  •  •  • 

CHAPTER  VI. 
The  Mobility  of  Labor  (Continued) . 

CHAPTER  VH. 
Trade-Unions  as  a  Wages  Factor 

CHAPTER  Vni. 

The    Methods  of  Industrial   Remuneration 
AS  A  Wages  Factor 

•  •  •  • 

vU 


PAGE 
I 


41 


79 


127 


174 


199 


254 


281 


THE  BARGAIN  THEORY 
OF  WAGES. 


CHAPTER  I. 


THE  SUBSISTENCE  THEORY. 

THE  great  historical  theories  of  wages  correspond 
in  their  order  and  in  their  character  with  the 
stages  in  the  development  of  labor  from  the  disap- 
pearance of  slavery  and  serfdom  to  the  rise  of  real 
freedom.  Although  legal  slavery  and  serfdom  had 
disappeared  in  England  centuries  before  the  Indus- 
trial Revolution,  there  was  still  sufficient  survival  of 
its  spirit  to  incline  men  towards  a  view  of  wages 
which  is  true,  in  its  full  extent,  only  of  slave  labor. 
Down  to  the  beginning  of  the  present  century  there 
were  legal  restrictions  on  the  movement  of  laborers 
from  one  parish  to  another ;  and  colliers  in  Scotland 
were  even  then  transferred  with  the  pits  in  which 
they  labored.  The  general  conditions  of  dependence 
were  such  that  the  economic  effects  did  not  differ 


The  Bargain  Theory  of  Wages. 


very  much  from  the  actual  effects  of  legal  slavery. 
The  effect  of  the  Industrial  Revolution  was  gradually 
to  change  all  this.  The  number  of  hired  laborers 
increased  every  year;  and  the  pressure  of  competi- 
tion qualified  the  supremacy  of  the  employer.  His 
domination  of  the  industrial  world  became  merely  a 
predominance.  The  power  of  the  employer  was  still 
indeed  very  great,  and  he  was  able  to  dictate  al- 
most any  terms  he  pleased  to  those  who  depended 
on  him  for  employment;  but  the  development  of 
Trade  Unionism  and  the  growth  of  the  political 
power  of  the  working  classes  brought  a  greater 
change.  The  legal  restrictions  on  the  movements 
of  the  laborer  had  disappeared,  and  the  progress 
towards  democracy  gave  the  laborer  strength  to 
treat  with  his  employer  as  with  an  equal  and  not 
with  a  superior.  The  centre  of  political  gravity  had 
shifted,  and,  despite  belated  attempts  at  feudal  and 
despotic  government,  the  balance  of  economic  power 
was  with  the  emplovces  rather  than  with  the  em- 
ployers; and  labor  became  the  predominant  partner. 
The  working  classes  had  been  the  first  to  learn  the 
secret  of  open  combination,  and  from  them  the  em- 
ployers have  learned,  or  are  learning  it.  The  tacit 
combinations  of  employers  to  keep  down  wages,  to 
which  Adam  Smith  referred,  had  broken  down 
before  the  stress  of  competition  of  master  with 
master;  and  when  competition  wrs  discovered  to  be 
suicidal,  the  employers  openly  associated  and  com- 
bined, to  meet  the  combinations  of  the  working 
classes  and  to  make  their  own  power  effective.     They 


]V(T£-cs  Theories  Correspond  to  Labor  Conditions.     3 


quickly  recovered  from  the  unnecessary  panic  into 
which  the  development  of  Trade  Unionism  had 
thrown  them,  and  quickly  recovered  much  of  their 
lost  ground.  The  condition  of  industry  to-day  is 
one  of  opposing  combinations  of  masters  and  men ; 
and  an  armed  peace  as  the  result  of  negotiations. 

The  development  of  the  theories  of  wages  corre- 
sponds, in  a  certain  measure,  with  the  evolution  of 
industrial  freedom.  The  theories,  it  is  true,  follow 
the  development  of  the  social  phenomena  afar  off; 
and  we  must  not  strain  the  parallelism.  The  earliest 
theory  is  the  doctrine  that  wages  are  determined  by 
the  cost  of  the  subsistence  of  the  laborers;  and  it  is 
obviously  based  on  a  real  or  assumed  analogy  be- 
tween wage  labor  and  slave  labor.  It  assumes  the 
absolute  supremacy  of  tlie  employer,  though  his 
supremacy  is  created  by  the  self-imposed  degradation 
of  the  employees  under  the  tyranny  of  the  sexual 
instinct.  The  change  in  the  position  of  the  em- 
ployer from  domination  to  mere  predominance  is 
followed  by  the  development  of  the  Wages-Fund 
Theory,  in  which  the  measure  of  the  wages  is  the 
intention  of  the  capitalist  employer.  A  certain 
measure  of  freedom  is,  in  this  theory,  accorded  to 
the  laborer.  He  can,  at  least,  raise  his  wages  by 
exercising  self-restraint  and  restricting  his  numbers; 
but  the  employer  is  sti'l  the  dominant  factor  in  the 
wages  problem.  The  Wages-Fund  Theory  gave 
place  to  the  Productivity  Theory,  in  which  the  deter- 
mination of  wages  is  apparently  regarded  as  almost 
entirely  within  the  laborer's  own  power.    Wages  are 


The  Bargain  Theory  of  Wages. 


paid  according  to  the  efficiency  of  the  laborer,  and 
the  employer  has  almost  nothing  to  do  with  the 
wages  question  but  to  pay  the  wages.  The  earlier 
positions  are  reversed.  The  laborer  becomes  the 
residual  owner  of  the  product — for  production  has 
become,  explicitly,  the  co-operation  of  capital  with 
labor.  This  theory,  however,  the  acceptance  of 
which  dates  from  the  year  of  Mill's  recantation 
of  the  Wages-Fund  Theory,  under  the  influence  of 
his  growing  interest  in  the  growing  power  of  Trade 
Unionism,  greatly  exaggerates  the  independence  of 
the  laborer's  position.  It  takes  no  account  of  the 
combinations  of  employers,  tacit  or  avowed ;  and 
the  influence  of  such  combinations  in  the  determina- 
tion of  wages  cannot  be  ignored.  The  theory  of 
wages,  consequently,  is  tending  to  change  to  a  form 
in  which  the  supremacy  of  no  one  party  in  the  wages 
transaction  is  assumed.  Neither  the  employer,  as 
in  the  earlier  theories,  nor  the  emlpoyee,  as  in  the 
latest,  can  be  regarded  as  the  sole  determiner  of 
wages.  The  employer  is  not  a  donor,  nor  is  the 
employee  the  owner  and  dictator  of  wages.  Em- 
ployer and  employed  are  opposed  to  each  other 
as  bargainers  in  a  market  where,  through  various 
causes,  their  forces  are  about  equal.  Wages  are  to 
be  regarded  as  determined  in  the  way  in  which  all 
bargains  are  concluded — partly,  by  the  estimate 
which  each  party  to  the  bargain  has  formed  of  the 
value  of  the  subject  of  the  bargain,  and,  partly,  by 
the  comparative  strength  and  knowledge  of  the 
bargainers  in  bargaining.     All  the  earlier  theories 


The  Plan  of  the  Essay. 


5 


attempt  to  establish  one  determining  principle  of 
wages  according  as  they  recognize  the  supremacy 
of  the  employer  or  the  supremacy  of  the  laborer. 
This  theory,  based  on  the  phenomena  of  organiza- 
tion of  employers  and  employed  in  combinations 
of  approximately  equal  strength,  puts  forward  two 
determining  principles,  or,  more  accurately,  asserts 
that  the  wages  of  labor  will  be  determined  between 
two  estimates  as  limits. 

The  object  of  this  chapter,  and  of  the  two  suc- 
ceeding, is  to  establish,  by  means  of  a  critical  ex- 
amination of  the  earlier  theories,  the  theory  of  wages 
as  a  bargain ;  and  the  result  will,  it  is  hoped,  demon- 
strate, in  the  fourth  chapter,  that  this  eclectic  theory 
embodies  all  that  is  of  permanent  value  in  the  earlier 
theories.  The  doctrines  of  the  prevailing  philosophy 
have  convinced  all  men  that  no  great  movement  can 
be  entirely  wrong;  and  assuredly  no  great  theory 
can  be  utterly  rejected.  We  shall  find  that  the  sub- 
sistence theory  provides  one  determining  principle 
and  the  productivity  theory  another;  but,  instead 
of  choosing  one  or  the  other,  and  claiming  half 
the  truth  as  the  whole  truth,  we  shall  find  that 
the  subsistence  theory  gives  us  the  seller's  estimate 
of  what  he  has  to  sell,  and  the  productivity  theory 
the  buyer's  estimate  of  what  he  enters  the  market  to 
buy;  and  that  the  Wages-Fund  Theory,  in  one  of 
its  propositions,  states  the  force  which  determines 
where,  between  those  limits,  actual  wages  are  de- 
termined, and,  moreover,  gives  the  outlines  of  the 
complete  theory. 


nn^ 


./-...  --L-^w  fjbja-. 


6 


The  Bargain  Theory  of  Wages. 


The  first  important  and  scientific  theory  of  wages 
is  that  the  reward  of  labor  is  determined  by  the 
cost  of  subsistence  of  the  laborers.  This  theory  has 
been  called  by  various  names — the  Theory  of  Nat- 
ural Wages,  the  Ricardian  Theory,  the  Iron  Law  of 
Wages,  the  Standard-of-Comfort  Theory,  and  the 
Doctrine  of  a  Li/ing  Wage;  but  no  one  of  these 
labels  is  quite  satisfactory.  In  adopting  the  title  of 
the  Subsistence  Theory,  we  adopt  a  title  which  is 
explanatory  of  the  common  element  in  all  the  phases 
of  the  theory,  and  yet  does  not  gratuitously  invite 
criticism,  as  the  Iron  Law  of  Wages  does,  for  in- 
stance. 

The  Subsistence  Theory  has  gone  through  some- 
what remarkable  variations;  but  the  change  has 
been  rather  in  the  sentiments  of  the  advocates  than 
in  the  substance  of  the  theory.  The  earliest  writers 
and,  on  the  whole,  Ricardo  himself,  to  say  nothing 
of  the  socialists  who  claim  to  be  Ricardo's  true  seed, 
have  interpreted  the  law  very  pessimistically.  The 
socialists  have  denounced  the  iron  law  as  the  crying 
evil  and  iniquity  of  our  present  social  system ;  but 
the  modern  advocates  of  the  theory  seem  to  regard 
the  law  as  opening  a  door  of  hope  for  labor.  The 
change  is  not  in  the  substance  of  the  doctrine.  Even 
Ricardo,  at  times,  as  we  might  show,  regarded  the 
cost  of  subsistence  as  a  variable  minimum,  not  neces- 
sarily coincident  with  the  cost  of  physical  life.  His 
passing  admissions  have  been  taken  up  and  amplified 
by  the  modern  adherents  of  the  theory  till  the  theory 
itself  seems  transformed.      Yet    Mr.   Gunton,    the 


The  Variations  in  the  Subsistence  Theory, 


most  ardent,  as  he  is  the  most  scientific,  of  the  opti- 
mists, does  not  claim  that  wages  should  vary  with 
every,  the  slightest,  variation  of  the  standard.  The 
theory  has  changed  its  sky  but  not  its  nature.  The 
difference  between  the  early  and  the  later  ''crms  of 
the  theory  is  due  to  the  generally  changed  attitude 
towards  labor  questions.  Ricardo,  writing  ai  a  time 
when  the  first  and  most  lasting  impression  made 
by  Malthus  was  one  of  the  most  important  facts  in 
the  world  of  economic  theory,  was  pessimistic  and 
regarded  wages  as  tending  naturally  to  fall  as  low  as 
possible.  Mr.  Gunton,  and  the  self-constituted 
spokesmen  of  the  modern  labor  movement,  writing 
after  half  a  century's  progress  of  the  working  classes 
and  steady  rise  of  wages,  regatfl  the  standard  of 
subsistence  as  a  method  of  raising  wages.  But  the 
essence  of  the  theory  is  in  both  cases  the  same. 
The  value  of  labor  is  determined  from  the  side  of 
labor  alone.  The  sole  determinant  is  the  cost  of  the 
commodities  on  which  the  laborer  subsists ;  whether 
this  cost  be  regarded  as  determined  by  the  rapacity 
of  the  capitalist  (as  the  socialists  say),  by  the  tyranny 
of  the  sexual  instinct,  or  by  the  firmness  with  which 
the  working  classes  maintain  their  customary  or  as- 
sumed mode  of  life.  The  force  which  operates  to 
make  the  cost  of  subsistence  the  standard  of  wages 
differs  according  to  the  standpoint  of  the  theorist; 
but,  in  all  cases  whatever,  the  substance  of  the 
theory  is  the  same. 

Adam   Smith,    and    his    successors,    treated    the 
theory  of  distribution  as  if  it  were  only  a  branch  of 


8 


The  Bargain  Theory  of  Wages. 


Hi, 


the  theory  of  production.  In  wages  as  wages  they 
had  little  interest.  The  chapter  in  the  Wealth  of 
Nations  dealing  with  wages  is  the  first  of  four  chap- 
ters discussing  the  component  parts  of  price.  Wages 
were  thus  regarded  mainly  as  an  element  in  the  cost 
of  production ;  and  it  was  natural  that,  when  the 
reward  of  labor  was,  for  the  moment,  considered  in 
itself,  the  general  point  of  view  should  be  retained 
and  the  discussion  of  wages  become  a  discussion  of 
the  component  parts  of  the  cost  of  production  of 
labor.  His  treatment  of  wages  is  fruitful  of  sugges- 
tions; and  germs  and  illustrations  of  all  the  later 
theories  may  be  found  within  the  narrow  limits  of 
that  one  chapter;  but  the  natural  development  was 
in  the  direction  of  a  theory  of  wages  which  finds  the 
explanation  in  the  cost  of  production  of  labor. 

No  one  has  ventured  to  advance  a  naturalistic  in- 
terpretation of  the  cost  of  production  of  labor.  The 
phrase  has  always  been  interpreted  in  terms  of  the 
cost  of  the  commodities  necessary  for  maintaining 
life.  The  cost  of  production  of  a  machine — and 
labor,  from  this  point  of  view,  is  only  a  more  costly 
because  a  more  complex  machine — is,  firstly,  the 
cost  of  the  fuel  and  the  other  requisites  of  its  opera- 
tion, and,  secondly,  the  reserve  set  aside  against  de- 
preciation for  renewing  or  replacing  the  machine 
when  it  is  worn  out.  These  two  items  in  the  case 
of  labor  are  the  cost  of  maintaining  the  laborer  in 
working  condition,  and  the  cost  of  rearing  new  sup- 
plies of  labor  to  take  the  place  of  the  old  when,  in 
the  course  of  nature,  that  is  worn  out  or  superan- 


Wages  as  aft  Element  of  Cost. 


9 


nuated.  But  the  analogy  from  machinery  seems  to 
lead  us  too  far.  The  reserve  set  aside  for  replacing 
and  renewing  a  machine  remains  in  the  possession  of 
the  owner;  but  the  new  supplies  of  labor,  for  the 
provision  of  which  allowance,  according  to  the 
theory,  must  be  made,  are  not  the  property  of  the 
employer  except  under  the  conditions  of  slavery. 
The  criticism,  therefore,  raised  against  the  theory 
on  this  point  is  not  without  justification.  The 
analogy  is  pressed  too  far  to  the  neglect  of  the  obvi- 
ous fact  of  the  difference  between  persons  and  things. 
The  difference  is  essential.  There  is  no  necessity 
that  an  employer  should  have  such  a  tender  regard 
for  the  interests  of  employers  of  the  next  generation 
as  to  make  him  pay  higher  wages  to  maintain  the 
supply  of  labor  and  replace  the  labor  which  is  worn 
out.  Most  employers  are  content  that  there  should 
be  profit  in  their  time,  and  quite  willing  to  be  as 
Irish  as  Sir  Boyle  Roche  in  their  disregard  of  pos- 
terity. If  the  early  economists  had  interpreted  the 
law  in  the  same  way  as  the  socialists,  who  have 
forcibly  entered  into  their  labors,  the  objection  that 
the  theory  was  inconsistent  would  be  perfectly 
sound.  The  cost  of  rearing  and  educating  a  family 
cannot  strictly  be  included  within  a  minimum  of 
subsistence.  If  this  item  is  included  in  the  cost  of 
production  of  labor,  we  cannot  rightly  speak  of  a 
minimum  of  subsistence.  But  for  the  early  econo- 
mists it  was  not  the  rapacity  of  the  employer  but 
the  strength  of  the  principle  of  population  which 
made  the  cost  of  subsistence  the  measure  of  wages ; 


10 


The  Bargain  Theory  of  Wages. 


and  tlic  principle  of  population,  not  unnaturally, 
admits  the  inclusion,  within  the  minimum,  of  an 
amount  sufficient  to  j^revent  the  race  of  laborers 
from  bccomin<jf  extinct. 

There  can  be  no  manner  of  doubt  that,  in  the  long 
run,  waijjes  are  sufficient  to  cover  both  the  cost  of 
maintaining  the  laborer  and  the  cost  of  rearing  the 
new  supplies.  If  industry  is  to  contiiiue,  and  in- 
dustry does  continue,  both  items  of  the  cost  must 
be  met,  and  both  items,  therefore,  are  met.  Wages 
arc  sufficient  to  cover  the  cost  of  production,  but 
arc  they  more  than  sufficient  ?  Is  there  a  surplus 
accruing  to  labor  as  a  whole,  over  and  above  the 
amount  necessary  to  cover  the  cost  ?  The  question 
is  often  rendered  more  difficult  of  answer  because  of 
a  failure  to  make  an  obvious  distinction.  We  are  in 
the  habit  of  estimating  wages  simply  in  gross, 
whereas  rent  and  interest  are  net  returns.  The 
absolute  necessity  that  the  capital  expended  in  pro- 
duction should  be  replaced  is  at  all  times  asserted ; 
and,  over  and  above  the  capital  sum  replaced,  it  has 
generally  been  recognized  that  a  payment  should  be 
made  for  the  use  of  the  capital,  or  (as  we  may  say 
without  prejudice)  as  the  reward  of  abstinence.  The 
returns  of  capital,  however,  are  not  estimated  as  a 
gross,  but  purely  as  a  net  return.  Interest  is  the 
return  to  capital,  and  that  is  not  said  to  be  103  or 
1 10,  but  three  or  ten  per  cent.  Over  and  above  the 
capital  sum  a  further  payment  is  made.  Rent  is 
also  a  purely  net  return.  The  natural  properties 
of  the  soil  remain  practically  intact;  and  the  land- 


i"  )'fi 


Wages  a  Gross  Return. 


II 


owner's  share  is  regarded,  not  as  his  land  returned 
to  his  keeping  in  its  original  condition  pkis  the  rent 
he  receives  for  its  use,  but  simply  as  the  rent  which 
he  obtains.  In  the  case  of  wages,  the  treatment  is 
different.  Wages  are  treated  as  if  they  were  a  net 
return  comparable  in  some  way  with  the  three  or 
the  ten  per  cent,  of  interest.  No  distinction  is 
made,  as  in  the  case  of  capital,  between  the  refund- 
ing of  the  energy  expended  and  the  payment  for  the 
use  of  that  energy.  Both  are  lumped  together,  and 
the  only  attempt  made  to  distinguish  them  is  in  the 
theory  and  practice  of  taxation  when  a  minimum  is 
exempted.  Yet  the  laborer,  as  we  may  say,  by  con- 
venient analogy,  has  invested  his  capital  fund  in  pro- 
duction just  as  really  as  the  capitalist  has  his ;  and 
there  is  the  same  necessity  that  this  expenditure 
should  be  refunded,  if  production  is  to  be  economi- 
cal. This  expenditure  is  the  energy  spent  in  labor 
and  includes  more  than  mere  physical  exertion. 
The  energy  expended  varies  in  kind  as  well  as  in 
degree;  and  the  energy  refunded  must  be  an  exact 
equivalent  of  what  is  expended.  The  energy  ex- 
pended by  an  artisan  in  a  higher  skilled  trade  re- 
quiring a  large  amount  of  attention,  or  the  nervous 
energy  expended  by  a  common  school  teacher,  are 
different  in  kind  as  well  as  in  degree  from  that  ex- 
pended by  a  common  day  laborer;  and  the  amount 
refunf'  ,d  must  vary  accordingly.  The  return  to 
labor  must,  at  least,  be  such  as  will  enable  each 
worker  to  start  his  work  on  the  morrow  in  the  same 
condition  as  he  started  the  previous  day  or  the  pre- 


12 


The  Bargain  Theory  of  Wages. 


vioiis  week.  The  standard  of  his  efficiency  must  be 
maintained.  It  is  true  that,  just  as  capital  may  be 
so  invested  that  it  not  only  docs  not  receive  a  net 
return  in  the  shape  of  interest  but  may  itself  not  be 
refunded,  labor  may  be  so  employed,  by  itself  or  in 
the  service  of  another,  that  the  reward  of  labor  is 
not  sufficient  to  replace  the  energy  expended.  In 
this  case  the  result  is  the  degradation  of  labor.  On 
the  whole,  and  in  the  long  run,  the  wages  of  labor 
are  sufficient  to  refund  the  energy  expended,  but  are 
they  ever  more  than  sufficient  ?  Does  labor,  like 
capital,  obtain  a  surplus,  or  a  net  return  ?  Labor 
has  the  same  right  as  capital  has  (if  we  may  speak 
of  right  in  either  case)  to  demand  a  surplus  return, 
over  and  above  the  refunding  of  the  energy  ex- 
pended; and,  if  labor  does  not  receive  a  net  return, 
corresponding  to  interest,  it  must  be  because  there 
is  something  special  in  the  conditions  of  labor  which 
prevents  this  result. 

The  advocates  of  the  subsistence  theory  have 
generally  contended  that  labor  must  and  does  obtain 
a  return  sufficient  to  refund  the  energy  expended ; 
but  they  have  not  always  gone  on  to  ask  whether 
labor  receives  anything  over  and  above.*  Interest, 
according  to  the  popular  view,  is  necessary  because, 
without  it,  capital  would  not  be  saved  and  invested 
in  sufificient  quantity  to  maintain  industrial  efificiency. 
Is  labor  entitled  to  demand  a  similar  net  return,  or 

*  Adam  Smith's  suggestive  analysis  of  the  standard  of  subsistence 
(see  note,  p.  23)  was  not  taken  up  until  the  theory  was  being  tried,  to 
be  found  wanting. 


Is  There  a  Net  Return  to  Labor  ? 


13 


are  there  forces  at  work  which  enable  the  employers 
directly,  and  society  indirectly,  to  disregard  this  de- 
mand of  labor  ?  Now  labor  involves  disutility  as 
fully  and  as  certainly  as  saving  involves  abstinence 
and  self-denial.  The  laborer  has,  it  is  true,  less  to 
^ain  and  more  to  lose  by  refusing  to  work,  than  the 
capitalist  has  in  not  abstaining  from  consuming  his 
wealth.  The  laborer  is  dependent  for  his  life  on  his 
working;  but  the  capitalist  need  only  not  practise 
self-denial.  However,  since  labor  involves  disutility, 
simply  to  replace  the  energy  the  laborer  has  ex- 
pended will  not  always  be  sufficient.  The  laborer  is 
not  a  machine,  but  a  human  being  actuated  by  indi- 
vidual and  personal  motives  and  feelings;  and  he  is 
little  likely  to  spend  himself  simply  that  his  expenses 
may  be  refunded.  Individuals  may  be  so  inclined ; 
but  the  great  mass  of  men  value  themselves  more 
highly.  If  there  is  not  a  net  return  in  cases  where 
the  disutility  of  labor,  from  whatever  cause,  is  great, 
the  laborer  will  content  himself  with  the  expenditure 
of  but  little  of  his  energy.  In  order  to  obtain  the 
best  results,  it  will  always  be  found  necessary  that 
something  more  than  the  maintenance  of  the  status 
quo  ante  should  be  assured.  There  are  those  who 
must  save  and  those  who  cannot  help  saving,  and 
for  them  the  net  return  to  capital  need  not  be 
high;  but  a  certain  rate  of  interest  has  been 
found  to  be  necessary  to  call  out  that  amount  of 
abstinence  from  the  immediate  utilities  in  consump- 
tion as  will  enable  industry  to  be  carried  on  and  ex- 
tended.    So   although  all  laborers  (or  nearly  all) 


14 


TJic  Bar^i^ain  Tlicory  of  Wages, 


W 


must  labor  to  continue  living,  a  net  return  to  labor 
is  necessary  to  get  the  best  industrial  results  from 
the  laborer. 

The  early  advocates,  at  least,  of  the  subsistence 
theory  declare,  in  effect,  that  a  net  return  to  labor 
is  unnecessary  and,  in  the  long  run,  improbable. 
The  glory  of  going  on  and  still  to  be,  is,  in  their 
view,  a  sufficient  incentive  to  overcome  the  disutility 
of  labor.  The  necessity  of  living  provides  a  strong 
enough  incentive.  The  laborer  must  live  and  to 
live  must  be  prepared  to  sacrifice  his  comfort.  He 
has  no  reserve  on  which  to  subsist ;  and  the  stern 
necessities  of  d  'ly  life  compel  him  to  work  for  that 
which  is  just  sufficient  to  enable  him  to  subsist. 
Should  he,  by  the  benevolence  of  his  employer,  or 
through  the  force  of  public  opinion,  or  from  acci- 
dent, obtain  a  higher  reward  than  is  necessary  to 
enable  him  to  subsist,  he  will  either  labor  less,  or  he 
will  indulge  himself  in  such  a  way  as  eventually  to 
bringdown  his  enhanced  wages  to  an  amount  which 
simply  enables  him  to  continue.  Among  semi- 
civilized  and  indolent  races,  work  will  cease  when 
enough  has  been  earned  to  provide  subsistence; 
among  civilized  people,  the  effect  of  a  surplus  over 
the  cost  of  subsistence  will  be  to  increase  competi- 
tion till  wages  fall  to  the  subsistence  limit.  The 
wages  of  going  on  may  be  very  much  higher  in  one 
country  than  in  another.  The  intensity  of  labor 
differs  in  different  countries;  and  consequently  a 
greater  or  less  amount  is  required  to  replace  the 
energy  expended.     Wages  must,  in  the  long  run, 


Labor  of  Varying  Intensity, 


«5 


be  sufficient  to  cover  the  expenditure,  but,  in  the 
lonj;  run,  they  need  not  be  more  than  sufficient ;  for 
the  necessity  of  making  a  living  is  a  force  strong 
enough  to  counterbalance  the  disutility  of  labor. 

The  gradual  change  in  the  subsistence  theory  of 
wages  was  due,  in  part,  to  the  fuller  recognition  of 
the  fact  that  labor  is  of  varying  degrees  of  intensity 
and  hence  involves  a  greater  or  less  expenditure  of 
energy.  Ricardo  and  the  early  exponents  seemed 
to  regard  all  labor  as  being  of  one  quality  and  hence 
as  involving  the  expenditure  of  equal  amounts  of 
energy.  Wages,  therefore,  were  taken  to  be  the 
equivalent  which  was  necessary  to  replace  this 
energy.  The  actual  variations  of  wages  w^erc  ex- 
plained by  means  of  the  distinction  between  market 
wages  and  natural  wages.  Except  in  a  theoretical 
case,  wages  were  determined  by  the  amount  of  com- 
modities necessary  to  sustain  the  life  of  the  laborer; 
and  this  amount  was  not  considered  as  varying  from 
individual  to  individual,  but  as  determined  abso- 
lutely by  constant  physiological  conditions.  The 
theory,  at  this  stage,  takes  practically  no  account  of 
the  fact  that  the  expenditure  of  energy  is  not  always 
an  expenditure  of  bodily  force.  Yet  there  is  no 
common  term  which  will  enable  us  to  compare  the 
energy  severally  expended  say  by  a  school  teacher,  a 
newspaper  compositor,  and  a  dock  laborer.  Each 
may  be  correspondingly  equipped  for,  and  efficient 
in,  his  work;  and  at  the  end  of  a  day's  labor  each 
may  be  correspondingly  worn  out.  To  enable  them 
to  begin  the  morrow's  work  with  their  former  effi- 


i6 


The  Bargain  Theory  of  Wages. 


ciency,  each  requires  a  different  kind  of  treatment 
and  recuperation.  The  minimum  of  subsistence 
which  will  effect  this  result  is  so  different  in  each 
case  that  to  use  the  term  physical  minimum,  as 
applying  indifferently  to  all  three,  is  to  darken 
counsel  by  words  without  knowledge.  The  laborer 
will  probably  require  more  food  than  the  other  two. 
The  workingman  is  a  better  customer  to  the  grocer 
than  a  professional  or  semi-professional  man  with 
twice  the  salary  of  the  workingman.  Yet  the  fact 
that  a  teacher  eats  less,  but  is  more  fastidious  about 
what  he  eats,  affords  us  no  warrant  for  declaring 
that  the  greater  part  of  his  expenditure  could  be 
dispensed  with  because  his  physical  minimum,  esti- 
mated in  pounds  avoirdupois,  is  less  than  the  physi- 
cal minimum  of  a  dock  laborer.  So,  even  if  we  take 
the  standard  of  subsistence  as  a  physical  minimum 
including  no  surplus,  we  must  yet  admit  that  the 
physical  minimum  will  vary  according  to  the  nature 
of  the  occupation.  The  only  real  measure  the^e  can 
be  of  a  minimum  of  subsistence  is  the  amount  of  the 
necessaries,  comforts,  and  luxuries  of  life  which  is 
necessary  to  enable  each  worker  to  begin  each  day's 
labor  with  his  energy  restored.  The  physical  mini- 
mum in  other  words  must  be  relative  to  the  industry 
in  which  the  laborer  is  engaged  and  be  suflficient  to 
maintain  the  existing  standard  of  efficiency.  But  a 
physical  minimum,  interpreted  in  this  way,  is  far  too 
variable  to  afTord  a  foundation  for  a  law  of  wages ; 
and  it  was  natural,  especially  in  view  of  the  promi- 
nence  of   Malthus's   doctrine,    that   the   minimum 


Principle  of  Population  in  Wages  Theory.       ly 


should  be  interpreted  physriologically  rather  than 
industrially.  A  physiological  minimum  does,  and 
an  industrial  minimum  does  not,  provide  that  ele- 
ment of  certainty  and  stability  which  is  necessary  in 
the  determinant  of  wages. 

Ricardo's  logical  mind  discerned  that  it  was  im- 
possible to  base  a  scientific  law  of  wages  upon  a 
varying  foundation.  There  must  be  some  power 
behind  the  law  to  determine  wages  in  accordance 
with  it.  Without  this  power,  the  law  can  have  but 
little  scientific  importance.  The  power  which  brings 
the  law  into  operation  Ricardo  and  his  contempo- 
raries and  successors  found  in  the  principle  of  popu- 
lation. Mr.  Conner  is  somewhat  indignant  that 
Ricardo  should  habitually  be  misrepresented  as 
putting  forward  a  fixed  and  invariable  standard; 
and  passages  might  be  quoted,  such  as  Chapter  V., 
p.  74,  of  the  Principles  (Conner's  edition),  in  which 
Ricardo  somewhat  despondingly  remarks  that  the 
natural  price  of  labor  is  "  not  absolutely  fixed  and 
constant."  But  Ricardo  was  too  logical,  and  also 
too  much  under  the  domination  of  the  Malthusian 
idea,  to  lay  much  stress  on  the  exceptions  he  allows. 
It  was  necessary  for  scientific  exactness  that  the 
standard  should  be  fixed,  and  the  principle  of  popu- 
lation at  once  suggested  itself  as  the  power  which 
made  the  law  operative.  The  pressure  of  popula- 
tion against  the  limits  of  subsistence  is  due  to  the 
strongest  force  in  human  nature,  and,  although 
Malthus,  in  the  later  editions,  ceases  to  be  a  Malthu- 
sian, the  popular  impression  of  his  doctrine  remained 


^•mi^^m 


i8 


T/ic  Bargain  TJicory  of  Wage  . 


firm  that  no  institution  or  custom  was  strong  enough 
to  stand  long  as  a  bulwark  opposed  to  the  principle 
of  population.  The  dread  of  over-population  (which, 
in  the  strictest  Malthusian  sense,  however,  is  an  im- 
possibility) made  every  economist  tremble  for  the 
safety  of  any  institution  which  did  so  oppose  itself. 
Consequently,  to  Ricardo  and  his  successors,  the 
possibility  of  any  standard  of  comfort  higher  than 
the  physiological  minimum  was  only  theoretical. 
Yet,  as  the  industrial  conditions  became  more 
favorable  to  labor,  wealth  increasing  faster  than 
population,  economists  came  to  have  that  better 
understanding  of  the  doctrine  of  population  to 
w^iich  Malthus  himself  had  come,  and  the  idea  of  a 
standard  of  comfort,  a  conception  more  closely  in 
accordance  with  the  facts,  replaced  the  physiological 
minimum  as  the  determinant  of  wages.  Unfortu- 
nately, the  farther  we  depart  from  the  pliysiological 
minimum  and  the  more  elastic  the  standard  is  al- 
lowed to  become,  the  less  satisfactory  does  the 
standard  of  subsistence  become  as  the  basis  of  a 
scientific  theory.  Ricardo  had,  on  the  whole,  an 
invariable  standard,  because  wages  cannot  fall  below 
a  physiological  minimum  and  remain  below  if  in- 
dustry is  to  continue.  The  elastic  standard  of 
comfort  cannot  be  used  with  the  same  effect,  unless 
we  can  demonstrate  that  the  standard  of  comfort  is 
so  supported  by  custom  and  so  entrenched  behind 
all  the  moral  abhorrence  which  men  can  muster 
against  a  lower  order  of  living,  that  it  is  practically 
impossible  to  force  men  to  accept  any  other. 


i 


Industry  Subject  to  Fluctuations. 


19 


The  fact  that  on  less  than  represents  a  standard 
of  comfort  a  man  may,  for  a  time,  support  life,  is  the 
source  of  danger.  If  industry  were  always  pro- 
gressive, or  even  permanently  in  a  stationary  state, 
a  standard  of  comfort  might  possess  stability ;  but 
modern  industry  is  subject  to  periodical  fluctua- 
tions; and,  during  depressions,  large  numbers,  and 
a  comparatively  large  proportion  of  the  working 
classes,  are  out  of  employment  and  may  therefore 
be  faced  with  the  alternative  of  starvation  or  the 
acceptance  of  a  wage  lower  than  will  permit  the 
maintenance  of  the  standard  of  comfort.  Is  not 
the  life  more  than  meat,  and  the  body  than  raiment  ? 
they  may  urge,  unanswerably,  to  their  protesting 
habits  and  prejudices.  It  *  hard  to  understand  how 
any  prejudice  in  favor  ot  a  particular  manner  of 
living  can  withstand  such  an  appeal,  and,  under 
modern  industrial  conditions,  such  an  appeal  has 
often  to  be  made.  It  is  waste  of  words  to  speak  of 
a  stable  standard  of  comfort  when  ten  per  cent.,  and 
more,  of  the  working  classes  may  be  out  of  work; 
and  yet,  without  stability,  the  existence  of  a  standard 
of  comfort  has  little  bearing  on  the  problem  of 
the  determination  of  wages.  It  is  to  a  conscious- 
ness of  the  tende.icy  of  irregularity  of  employ- 
ment to  lower  the  standard  of  livincr  that  the 
modern  demand  for  fixing  the  living  wage  is  due. 
The  standard  of  a  Hvinir  waiijc  is  not  fixed  far  in 
advance  of  what  the  members  of  the  working  classes 
can  conceive.  It  is,  on  the  contrary,  determined  as 
the  ordinary  standard  of  comfort  at  which,  in  pros- 


20 


The  Bargain  Theory  of  Wages, 


pcrous  times,  the  working  classes  live.  It  has  been 
objected,  and  objected  rightly,  that  to  establish  such 
a  standard  wage  must  have  the  effect  of  reducing 
employment  and  throwing  the  less  efficient  out  of 
work;  but  it  is  answered  that,  for  the  best  interests 
of  the  working  classes  as  a  whole,  total  lack  of  em- 
ployment for  some  is  better  than  irregularity  of  em- 
ployment and  wage  for  all.  While  all  are  subject 
to  the  irregularity  due  to  the  fluctuations  in  trade, 
the  class  standard  can  neither  be  high  nor  stable. 
The  object  of  a  policy  of  a  living  wage  is  to  avoid 
the  degradation  of  the  whole  class  by  throwing  the 
burden  on  the  less  fortunate  individuals,  justifying 
the  policy  in  the  old  way  that  it  is  expedient  that 
one  man  should  die  for  the  people  and  that  the 
whole  nation  perish  not.  The  same  notion  is  behind 
the  plans,  such  as  Mr.  Charles  Booth's,  for  the  organ- 
ization of  dock  labor.  The  rationale  of  these  propo- 
sals is  that  the  standard  of  the  working  classes  is  so 
far  from  being  permanent  enough  to  determine 
wages,  that  we  must  practically  determine  wages  to 
prevent  the  standard  from  being  set  aside.  Before 
the  standard  of  comfort  can  act  as  the  determinant  of 
wages  it  must  possess  stability.  Without  stability, 
it  is  without  the  power  to  govern  wages.  Ricardo 
and  the  early  economists  were  aware  of  the  scientific 
necessity  of  having  a  fixed  standard,  and,  for  this 
reason,  accepted  the  standard  of  a  physiological 
minimum,  arguing,  in  spite  of  their  theoretical  ad- 
missions, as  if  wages  were  down  to  the  minimum. 
Below  a  physiological  minimum  wages  cannot  long 


Subsistence  Theory  and  Industrial  Conditions.    2 1 


remain,  and  this  was  their  point  of  absolute  cer- 
tainty. 

During  the  first  half-century  after  tiie  beginnings 
of  the  factory  system  the  outstanding  features  of  in- 
dustrial and  social  life  were  such  as  permitted  the 
economist,  with  the  assistance  of  his  theoretical  ex- 
ceptions, to  hold  unquestioned  this  doctrine  of 
natural  wages.  In  England,  wages  were  very  low, 
although  they  probably  were  not  quite  down  to  the 
physiological  rr '  "imum.  Any  divergence  between 
actual  wages  ana  the  cost  of  subsistence  in  this  narrow 
sense  was  obscured  by  the  fact  that  wages  and  the 
price  of  grain  generally  fluctuated  together.  The 
doctrine  received  strong  corroboration  from  the 
paradox  of  poor  relief  and  the  apparent  impossibility 
of  remedying  the  defects  of  the  poor  laws.  Allow- 
ances were  made  by  the  parish  to  the  poor,  and  the 
condition  of  the  poor  remained  the  same.  The  net 
result  of  the  parish  allowances  was  to  assist  the  em- 
ployer by  paying  for  him  part  of  the  wages  which 
he  would,  under  other  conditions,  have  had  to  pay 
out  of  his  own  pocket.  As  the  allowance  from  the 
parish  increased,  wages  decreased ;  and  the  problem 
baffled  the  best  minds  of  the  con  munity  till  they 
were  forced  to  abolish  the  old  system  of  poor  relief 
altogether.  This  paradoxical  phenomenon  could  be 
best  explained  by  the  subsistence  theory  of  wages, 
and  it  is  hard  to  see  what  other  explanation  can  be 
offered.  In  the  unprotected  condition  of  the  work- 
ing classes  in  the  early  days  of  the  factory  system 
the  subsistence  theory  of  wages  undoubtedly  offers 


li 


22 


T/ic  Bargain  Theory  of  Wages. 


\S 


■■•'     .-  !i 


a  full  explanation  of  the  facts,  and,  wherever  the 
same  hopeless  condition  ex'ists  as  existed  in  Eng- 
land at  the  beL;innin<^  of  this  century,  the  subsistence 
theory  will  afford  the  best  explanation  of  the  deter- 
mination of  wa^^es.  In  such  a  case  it  will  be  found 
to  be  as  true  as  it  was  then,  that  every  charitable 
allowance  made  in  aid  of  waives  will  serve  to  admit 
of  lower  wa<^es  bein<^  paid.  There  is  so  much  glib 
talk  of  the  pro<^ress  of  civilization,  and  of  the  pro<^ress 
of  the  working  classes,  that  we  are  apt  to  forget  that 
there  is  a  large  section  in  every  community  for 
whom  there  has  jjeen  no  amelioration.  Socially  and 
industriidly  the  **  white  slave  "  victim  of  the  sweater 
is  in  the  same  position  as  those  workers  who  were  in 
receipt  of  poor  law  relief  at  the  beginning  of  the 
century.  The  poor  relief  system  has  been  im- 
mensely improved,  and  it  is  no  longer  to  the  em- 
ployer of  labor  that  the  State  grants  aid  from  the 
rates;  but  the  economic  sense  of  the  community  has 
not  yet  been  educated  to  see  that  a  frequent  effect 
of  the  half-crown  dole  to  the  poor  struggling  widow 
is  to  enable  her  to  accept  lower  wages,  and  possibly 
to  drive  down  the  wages  of  others  who  receive  no 
half-crowns.  Against  indiscriminate  charity  every 
one  of  us  is  prepared  to  take  up  his  parable,  but 
what  of  discriminating  charity  ?  Discrimination  is 
good,  but  if  the  light  that  is  in  us  be  darkness! 

In  consequence  of  the  rise  of  wages  during  the  last 
half-century,  the  theory  cannot  now  be  maintained 
in  its  original  somewhat  naive  form.  The  wages  of 
the  majority  of  the  working  classes  are  considerably 


Chan'^i'd  Industrial  Conditions. 


23 


IS 


above  the  physiciil  miiiinium  and,  in  consequence, 
much  of  the  orii^inal  ari^ument  and  counter-ar<^ument 
lias  lost  its  force,  altiiou<^h  still  often  put  forward. 
Naturally  a  good  deal  of  evidence  is  of  an  ex  post 
fdcto  character.  This  evidence  would  be  fully  ad- 
missible, if  care  were  first  taken  to  show  in  virtue 
of  what  necessity  the  standard  of  comfort  does  de- 
termine wages;  but  this  care  has  not  always  been 
taken.  Wacres  are  higher,  therefore  the  standard 
must  have  been  higher,  is  a  type  of  the  style  of 
argument,  and,  in  spite  of  Adam  Smith's  common- 
sense  comment  that  '*  it  is  not  because  one  man 
keeps  a  coach  while  his  neighbor  walks  n-foot  that 
the  one  is  rich  and  the  other  poor;  but  because  the 
one  is  rich  he  keeps  a  coach,  and  because  the  other 
is  poor  he  walks  a-foot,"  '''  i\  propter  hoc  is  asserted 

*  Wealth  of  Nations,  p.  31.  The  ol)jections  to  the  tloctrine 
were  set  forth  by  Adam  Smith  almost  before  the  doctrine  had  been 
clearly  formulated.  The  o])jections  r.re  raised  to  the  early  form  of 
the  theory  and  have  not  the  same  force  against  the  standard  of  com- 
fort. The  advocates  no  longer  insist  on  the  necessary  correspondence 
between  wages  and  prices,  and  with  one  exception  Adam  Smith's 
objections  are  variations  of  the  contention  that  wages  and  prices  vary 
independently  of  each  other.  The  exception  is  that,  in  agriculture  at 
least,  summer  wages  are  higher  than  winter  wages,  although  the  cost 
of  living  is  less  in  summer  than  in  winter.  This  objection  cannot  be 
met  by  admitting  that  wages  do  not  respond  to  sudden  changes  in  the 
cost  of  living,  for  the  occasion,  in  this  instance,  is  recurrent.  If  win- 
ter wages  are  lower  than  summer  wages  it  is  evident  that  the  cost  of 
living  cannot  be  the  sole  determinant  of  wages.  Winter  wages  are 
lower  than  summer  wages  in  all  trades  that  depend  completely  on  the 
seasons,  and  may  be  lower  in  other  trades  on  account  of  increased 
competition.  Winter  wages  are  generally  lower  in  Canada  than  sum- 
mer wages,  and  the  working  day  is  not  always  shorter.     The  drivers 


24 


The  Bargain  Theory  of  Wages. 


% 


I 


while  it  is  still  doubtful  whether  q.vqxv  2i  post  hoc  \% 
justified. 

There  are  many  industrial  facts  which  bear  out 
the  contention  of  the  theory  and  make,  at  least,  a 
priuia  facie  case,  on  its  behalf.  We  have,  in  the 
first  place,  the  well-established  fact  that  wages  are 
highest  where  the  cost  of  living  is  highest.  City 
wages  are  generally  higher  than  country  wages,  and 
although  this  may  be  in  part  due  to  the  greater 
efficiency  of  town  labor,  the  correspondence  between 
the  cost  of  living  and  wages  is  too  extensive  and 
too  marked  to  be  merely  accidental ;  and  the  corre- 
spondence appears  not  only  when  we  compare  town 
and  country,  but  also  when  we  compare  different 

on  the  street  railway  in  Quebec  City  are  paid  seven  dollars  in  summer 
and  five  dollars  a  week  in  winter,  and  in  spite  of  the  shorter  working 
day  the  manager  admitted  that  the  hands  "  earned  their  money  harder 
in  winter  than  in  summer."  The  cost  of  living  in  Canada  on  account 
of  the  climate  must  be  at  least  one  third  higher  in  winter  than  in 
summer.  Canadian  Labor  Commission,  Quebec  Evidence,  p.  820; 
see  also  New  IJrunswick  Evidence,  p.  479,  where  it  is  stated  that 
one  dollar  a  day  is  paid  in  winter  and  a  dollar  and  a  quarter  in 
summer. 

"  (,).  Why  are  the  wages  lower  in  winter  than  they  are  in  summer? 
A.  Simply  because  we  can  get  the  men  to  work  cheaper  in  the 
winter.     .     .     . 

'*  Q.  Do  they  work  the  same  amount  of  time  ?    A.  Yes. 

"  Q.  Then  the  only  reason  is  that  the  supply  is  greater  than  the 
demand?  A.  Yes  ;  that  is  all.  Men  are  glad  to  work  for  a  dollar  a 
day  in  winter,  and  prefer  to  work  for  us  at  that  rate  of  wages  than  go 
to  work  in  the  woods." 

The  Canadian  winter  recurs  with  a  certain  regularity,  but  wages 
have  not  been  adjusted  to  meet  the  increased  cost  of  living,  although 
the  more  provident  of  the  working  classes  endeavor  to  adjust  their 
expenditure. 


I 


'    l,i 


Evidence  in  Support  of  Subsistence  Theory.     25 

sections  of  the  country.  Thus,  in  the  United  States, 
wages  are  higher  in  the  towns  than  in  the  country, 
but  they  are  also  higher  in  the  West  than  in  the 
East.  In  the  latter  case,  the  higher  cost  of  living 
seems  to  be  related  to  the  higher  wages  as  cause  to 
effect.  The  annual  average  earnings  for  the  whole 
of  the  United  States  is  $447.44,  but  the  earnings  in 
the  Western  States  are  far  above  the  average,  reach- 
ing in  Wyoming  $806,  and  in  Colorado  $685.'^  The 
following  is  a  comparative  statement  of  wages  in 
town  and  country  (165  towns  of  more  than  20,000 
inhabitants) : 

MEN.  WOMEN.      CHH-DREN. 

Town  average $567     $391     $159 

U.S.   "   498      276      141 

Country   "        401  239  120 

The  figures  in  this  table  show  also  that,  on  the 
average,  the  wages  of  women  are  lower  than  the 
wages  of  men.  The  reasons  why  this  is  so  have 
been  abundantly  discussed  and  a  practical  agreement 
has  been  reached,  viz.,  that  one  cause  why  the  wages 
of  women  are  less  is  that  they  demand  less,  and  that 
they  demand  less  because  they  can  live  on  less.  It 
may  be  that  the  women  of  the  upper  classes  insist 
on  a  higher  standard  of  comfort  than  the  men  of 
that  class  do ;  but  the  women  who  earn  wages  do 
not  belong  to  the  upper  classes  and  for  many  reasons 

*  Dr.  Carroll  Wright,  from  whose  Industrial  Evolution  of  the 
United  States,  p.  199,  these  figures  are  taken,  says  that  the  figures 
for  Wyoming  and  Colorado  are  drawn  from  too  narrow  a  basis  to  b? 
(juite  representative, 


26 


The  Btirsj^aiH  Theory  of  Wages. 


\ 


liave  fewer  requirements  than  the  men  of  their  class. 
In  the  first  place,  they  do  not  require  so  much  food 
to  nourish  them ;  and  when  wages  are  so  low  that 
the  cost  of  the  bare  necessaries  of  food  absorbs  the 
larj^er  part  of  the  waL,^es,  women's  wa<^es  may  be  at 
least  one  fourth  lower  than  men's.  The  fact  that 
they  can  live  on  less  makes  it  possible  for  them  to 
accept  less  and  yet  remain  as  efficient  as  they  were, 
while  male  labor  would  be  degraded.  In  the  second 
place,  a  woman's  standard  includes  more  of  those 
utilities  which  cannot  be  reduced  to  a  money  meas- 
ure. The  wages  of  female  skilled  labor  and  female 
unskilled  labor  do  not  differ  so  much  as  the  wages 
of  male  skilled  and  male  unskilled  labor — the  reason 
being  that  the  female  skilled  trades  arc  considered 
more  genteel  and  are,  therefore,  over-crowded.  A 
girl  employed,  say  as  a  bookbinder,  will  rather  sub- 
mit to  a  reduction  of  wages  than  consent  to  mix  with 
the  lower  social  class  of  workers  who  are  employed 
in  making  match  boxes.  Her  social  prejudices 
weaken  the  resistance  she  can  offer  to  any  attempt 
to  reduce  wages,  and,  consequently,  we  find  that 
the  wages  of  female  workers  never  depart  much  from 
the  average.  The  relatively  high  wages  of  the  less 
skilled  trades  are  due  in  part  also  to  the  higher  real 
requirements  of  these  workers.  Women  of  the 
lower  class  who  seek  employment  arc,  as  a  rule,  en- 
tirely dependent  on  what  they  earn ;  and  they  must 
therefore  earn  as  much  as  will  cover  the  cost  of  living. 
The  wages  of  female  workers  in  a  more  skilled  trade 
cire  used,  to  considerable  extent,  simply  for  dress  and 


!'>/ 


ii'. 


I 


Women  s  Wages. 


27 


pocket  money — a  part,  sometimes  the  ^rreater  part, 
of  their  support  beiny  obtained  gratuitously  at  home. 
Consequently,  their  standard  of  livin«^  h.is  not  suffi- 
cient stability  to  enable  it  to  resist  atten>)ts  to  lower 
waives.  In  the  third  place,  a  woman's  standard  of 
subsistence  is  frequently  only  a  personal  standard. 
It  is  iiulividual  rather  than  social  because  she  has 
only  herself  to  support  out  of  her  waj^es.  A  man's 
standard  of  subsistence  includes  the  support  of  his 
dependents.  There  are,  it  is  true,  a  lar<^e  number 
of  women,  widows  with  families  of  young  children, 
and  others  who  have  to  do  more  than  merely  sui)i)ort 
themselves;  but  these  form  only  a  minority  of  the 
working  women  while  the  men  who  have  dependents 
are  in  the  majority.  Men  are  thus  bound  to  offer 
effective  resistance  to  any  attempt  to  lower  wages. 
Family  afTection  is  a  strong  force  safeguarding  the 
standard,  and  where  it  is  operative  helps  to  maintain 
wages  at  a  higher  level.  It  has  the  greatest  effect  in 
maintaining  the  standard  when  the  family  is  almost 
entirely  dependent  on  the  w^agcs  of  the  breadwinner. 
Where  part  of  the  responsibility  is  removed  from 
his  shoulders,  because  the  dependent  members  of 
the  family  contribute  something  to  the  family  purse, 
his  power  of  maintaining  a  high  w\age  is  proportion- 
ately less.  The  higher  wages  are  not  so  much  re- 
quired and,  consequently,  are  less  likely  to  be 
obtained,  because  less  from  the  breadwinner  will 
serve  to  maintain  the  family  standard  of  comfort. 
It  is  curious  how  closely  family  earnings  approxi- 
mate to  an  average.     It  is  possibly  becoming  less 


1 


28 


The  Bargain  Theory  of  Wages, 


'■    if. 


% 


true  that  the  family  is  the  wage-earning  unit ;  but 
where  the  head  of  the  house  is  not  the  sole  wage- 
earner,  his  wages  are  proportionately  less.  The 
annual  earnings  of  the  factory  hands  are  lower  than 
the  annual  earnings  of  the  worker  in  the  building 
trades  which  demand  an  approximately  equivalent 
efficiency ;  and  the  explanation  is,  that  of  the  de- 
pendents of  the  former,  1.25  per  family  are  con- 
tributing to  the  family  funds,  while  .25  only  of  the 
dependents  of  the  latter  are  engaged  in  gainful  occu- 
pations. The  wife  and  some  of  the  children  of  the 
factory  hand  accompany  him  to  the  factory,  the 
wife  of  the  carpenter  or  the  bricklayer  remains  at 
home  and  the  children  continue  at  a  school  until 
they  are  older.* 

These  facts  are  capable  of  receiving  a  two-fold 
interpretation.  The  man  who  follows  alternative 
trades  may  earn  as  little  at  the  two  as  he  could  by 
efificient  practice  of  either  one;  but  the  reason  he 
offers  for  his  conduct  is  that  it  is  the  only  way  to 
make  a  living;  and  the  man  who  sends  his  wife  to 
the  mill,  and  takes  his  children  aaay  from  school  at 
an  early  age,  will  generally  justify  his  action  on  the 
ground  that  this  is  the  only  way  in  which  he  can 
make  both  ends  meet.  That  there  is  a  causal  effect 
between  the  standard  of  life  which  a  man  keeps  be- 
fore him  and  the  wages  paid  to  him  is  a  fact  beyond 
dispute;  but  which  is  the  cause  and  which  the  effect 
is,  by  no  means,  always  clear.  The  one  standard 
probably  acts  and  reacts  on  the  other.     And  the 

*  See  Gunton's  Wealth  and  Progress^  p.  171. 


ii  I' 

r?    t 


^i 


Practical  Motive  of  Modrrn  Subsistence  Theories.     29 


determination  of  the  direction  of  the  causal  relation 
has  not  been  rendered  easier  by  the  chan<;e  which 
happier  industrial  conditions  have  brought  in  the 
theory.  The  operation  of  the  new  poor  law  destroyed 
tlie  old  economic  paradox;  and  the  growth  of 
wealth  and  the  rise  of  wages  made  it  impossible  to 
assert  the  subsistence  theory  in  its  early  pessimistic 
form.  The  theoretical  exceptions,  which  Ricardo 
had  admitted,  were  brought  out  from  the  back- 
ground and  made  much  of.  The  expansion  of 
English  enterprise  and  industry  made  English  econ- 
omists aware  of  the  varying  conditions  of  labor  in 
different  countries  and  the  wider  experience  seemed 
to  suggest  that  the  higher  the  standard  of  living  the 
higher  the  wages.  The  centre  of  interest  in  eco- 
nomic questions  was  gradually  changing  from  wealth 
to  welfare,  and  the  growth  of  democracy  brought 
into  prominence  the  practical  problem  of  the  best 
method  of  raising  wages.  The  welfare  of  the  greater 
part  of  the  nation  depended  on  the  amount  of  the 
necessaries,  comforts,  and  luxuries  of  life  they  could 
command  with  their  wages,  and  the  practical  prob- 
lem of  raising  wages  was  of  more  interest  than 
the  scientific  problem  of  the  law  of  wages.  The 
first  conclusion  to  which  a  comparison  of  interna- 
tional standards  of  life  and  comfort  and  international 
wages  led,  was,  that  since  the  higher  the  standard 
the  higher  the  wages,  the  best  method  of  raising 
wages  was  first  to  raise  the  standard.  The  standard 
of  living  or  subsistence  which,  under  Ricardo's  as- 
sumption that  wages  must  fall,  had  provided   the 


t '  ^'1 


30 


The  Bargain  Theory  of  Wages, 


H 


socialists  with  their  most  powerful  criticisms  of  ex- 
isting institutions,  becomes  in  the  hands  of  the 
most  hopeful  of  modern  labor  advocates  a  lever  fcr 
raising  wages.  If  wages  depend  on  the  height  of 
the  standard,  the  practical  conclusion  is  to  endeavor 
to  create  new  wants  and  new  aspirations,  in  the  con- 
fident hope  that,  when  these  are  felt  and  adopted, 
wages  will  rise  in  proportion.  The  working  classes 
thus  seem  to  have  their  future  in  their  own  hands. 
It  is  no  longer  an  iron  law  under  which  they  live, 
but  a  law  which  their  own  voices  have  proclaimed, 
their  own  wishes  can  amend.  This  is  the  key-note 
of  the  policy  of  the  ethico-socialist  reformers  of  the 
day,  who  declare,  if  we  may  take  Mr.  Keir  Hardie 
as  their  spokesman :  "  Wages  are  determined  by  the 
standard  of  living.  If  you  improve  the  condition  of 
the  men  you  make  a  higher  wage  necessary." 

The  theory  has,  therefore,  become  more  grateful 
to  our  modern  sentiments,  but,  unfortunately,  at  the 
same  time,  in  the  process  of  transformation,  has  lost 
almost  entirely  what  of  scientific  value  it  had.  The 
truth  of  the  theory,  in  its  early  form,  depended  on 
the  fact  that  there  was  a  limit  below  m  h'cn  wpgcs 
could  not  fall  and  industry  continue.  ri^in.i  .han 
this  limit  they  might  be  temporarily :  lower  it  was 
impossible  for  them  to  be.  Ricardo  was  not  in- 
clined to  lay  stress  on  the  causes  which  raised 
market  wages  above  natural  wages,  and  never 
dreamt  of  an  application  of  the  theory  to  prove  that 
market  wages  also  were  directly  determined  by 
variations  in  the  standard.     This  is  really  what  the 


fe 


The  Weakness  of  the  Modern  Form. 


31 


modern  advocates  attempt  to  show  regarding 
(Ricardo's)  market  wages.  They  still  maintain  that 
the  standard  of  life  determines  the  minimum  below 
which  wages  cannot  fall,  but  they  reject  altogether 
the  assumption  that  wages  tend  to  fall.  Indeed, 
they  seem  to  make  the  contrary  assumption  that 
wages  have  freedom  to  move  only  in  one  direction — 
upwards;  and  that  each  step  of  progress  is  irreversi- 
ble. When,  by  raising  the  standard  of  life,  a  new 
minimum  has  been  created,  it  is  asserted  that  this 
new  minimum  has  all  the  determining  power  on 
wages  which  the  original  physiological  or  industrial 
minimum  could  have.  The  raising  of  the  standard 
of  living  is  a  practical  method  of  raising  wages  only 
if  the  new  minimum  thus  created  has  all  the  perma- 
nence and  stability  of  the  old.  The  new  minimum  is 
not  based  on  any  physical  necessity,  or,  as  yet,  on  any 
industrial  necessity;  but  it  must  become  at  once  so 
firmly  entrenched  behind  the  customs  and  habits  of 
men  that  it  can  offer  a  very  serious  resistance  to  any 
attempt  to  reduce  wages  below  the  amount  which 
would  permit  life  according  to  the  new  standard. 
The  new  minimum  must  at  once  attach  to  itself  all 
the  determining  power  of  the  old ;  but  it  can  do  so 
only  by  creating  habits  and  dispositions  as  strong 
and  tenacious  as  the  habits  and  dispositions  which 
have  been  outgrown.  The  creation  of  new  wants 
and  aspirations,  so  strong  that  they  have  all  the 
force  of  entrenched  habits,  although  there  is  as  yet 
no  means  of  satisfying  these  wants  and  aspirations, 
is  not  to  be  accomplished  in  a  week  or  a  year.     We 


\ 

I? 


IS- 


32 


The  Bargain  Theory  of  Wages. 


:  X 


i      i 


K  f 


«  I 


1  I 


■I 


may,  of  course,  fix  wages,  as  Mr.  Kcir  Hardie  de- 
sires, by  legislation,  at  the  living  wage  of  three 
pounds  per  week,  and  trust  that  the  increased  op- 
portunities which  the  higher  wages  afford  will  enable 
the  wage-earners  to  form  a  new  habit  of  life  in  which 
new  and  higher  wants  and  aspirations  have  a  proper 
place;  but  that  is  legislation,  not  wages  theory.  On 
the  contrary,  it  is  an  explicit  contradiction  of  the 
subsistence  theory,  which  requires  that  higher  wages 
shall  follow,  and  be  caused  by,  the  higher  standard 
of  living.  With  the  advisability  of  such  legislation 
we  are  not  concerned,  except  in  so  far  as  the  pro- 
posal illustrates  the  difficulties  into  which  the  more 
hopeful  form  of  the  subsistence  theory  leads  us. 
We  have  to  reconcile  a  doctrine  which  professes  to 
show  a  method  of  raising  wages  with  a  theory  which 
declares  that  there  is  a  minimum  below  which  wages 
cannot  fall. 

It  is  obvious  that  the  reconciliation  cannot  be 
affected  by  supposing  the  universal  and  immediate 
adoption  by  the  whole  of  the  working  classes  of  the 
proposed  additions  to  the  standard  of  living.  Such 
a  supposition  would  be  contradicted  both  by  history 
and  by  moral  theory.  Wholesale  conversions  do 
not  usually  involve  any  serious  change  of  heart. 
The  masses  are  never  elevated  at  once,  but  by  the  old 
and  familiar  way  of  making  giants  and  leaving  it  to 
them  to  elevate  the  mass.  New  wants  and  aspira- 
tions will  at  first  be  felt  by  but  a  few — too  few  to 
bring  any  serious  influence  to  bear  on  the  labor 
market.     Consequently,  if  the  creation  of  new  wants 


i  i 


Mr.  Guntons  Version. 


33 


1 


and  aspirations  is  to  be  a  practical  method  for  rais- 
ing wages,  it  must  be  supposed  to  effect  the  purpose 
in  some  indirect  way :  for  directly  and  obviously  the 
effect  of  new  wants  must  at  first  be  infinitesimal. 

Mr.  Gunton  has  endeavored  to  restore  the  subsis- 
tence theory  to  the  rank  of  a  scientific  explanation 
of  wages.  It  was  rapidly  becoming  a  mere  pious 
opinion  and  it  was  necessary  to  restore  the  necessity 
and  determining  power  which  the  theory  had  in  its 
earliest  stages,  in  some  way  consistent  with  the  prac- 
tical aim  which  had  come  to  be  associated  with  the 
theory.  The  evidence  which  car  be  given  in  favor 
of  the  theory  is  not  conclusive  till  it  has  been 
demonstrated  that  the  standard  of  life  can  determine 
wages:  until  this  has  been  shown,  the  concomitant 
variation  of  wages  and  standards  does  not  yield  the 
desired  conclusion.  Mr.  Gunton  faces  his  difficulty 
boldly  and  declares  that  "  the  chief  determining  in- 
fluence in  the  general  rate  of  wages  in  any  country, 
class,  or  industry  is  the  standard  of  living  of  the 
most  expensive  families  furnishing  a  necessary  part 
of  the  supply  of  labor  in  that  country,  class,  or  in- 
dustry ":  or,  as  he  says,  more  briefly,  later  on  the 
same  page,  "  the  minimum  amount  upon  which  the 
most  expensive  laborers  will  consent  to  live  deter- 
mines the  general  rate  of  wages  in  that  class."* 
We  may  translate  this  into  a  newer  terminology, 
and  say  that  the  wages  of  labor  are  determined  by 
the  marginal  supply  price  of  labor.  Mr.  Gunton, 
however,  seems  to  have  been  misled  by  analogy. 

*  Gunton's  Wealth  and  Progress,  p.  8g. 


34 


The  Bargain  Theory  of  Wages. 


\i 


I  I' 


The  marginal  supply  price  of  any  commodity  is  the 
price  at  which  the  most  expensive  portion  of  the 
commodity  can  be  sold.  Mr.  Gunton,  applying  this 
conception  to  labor,  claims  that  the  marginal  laborer 
is  the  laborer  with  the  highest  standard  of  living. 
He  may  be  so,  but  not  necessarily.  The  marginal 
laborer  is  the  laborer  who  is  on  the  margin  of  not 
being  employed ;  and  whether  he  shall  be  employed 
or  not  depends  on  whether  his  employer  thinks  it 
worth  while,  considering  the  price  of  the  commodi- 
ties which  he  will  be  engaged  in  producing,  to  em- 
ploy him.  It  is  not  a  matter  of  indifference  to  an 
employer  which  laborer  is  the  marginal  laborer.  In 
slack  times,  it  is  the  inefficient  workman  who  is  the 
first  to  be  dismissed  and  the  efficient  workman  who 
is  surest  of  his  place.  This  is  because  the  employer 
has  formed  his  own  personal  estimate  of  what  the 
man  is  worth — an  estimate  which  is  not  final  and 
may  be  modified  by  the  attitude  which  the  laborer 
chooses  to  take.  An  efficient  workman  who  has 
rendered  himself  obnoxious  by  agitation  and  com- 
plaints has,  from  the  employer's  point  of  view,  so 
much  the  less  efficiency.  In  the  main,  however,  it 
is  an  estimate  of  efficiency  that  determines  who  is 
the  marginal  laborer.  As  a  general  rule,  the  lower  a 
man's  standard  of  living  the  less  his  efficiency,  and 
the  higher  his  standard  the  better  is  he  at  his  work. 
The  laborer  with  a  high  standard  of  living  is  thus 
not  the  marginal  laborer  whose  earnings  determine 
the  general  rate  of  wages.  The  real  marginal  laborer 
is  he  who  "  adds  to  the  total  produce  a  net  value 


The  Manrinal  Laborer, 


35 


just  equal  to  his  own  wages,"  *  and  is  thus,  under 
the  actual  conditions  of  industry,  the  least  efficient 
workman  employed.  Accordingly  because  the  least 
efficient  workman  is  also,  generally,  the  workman 
with  the  lowest  standard  of  living,  if  the  standard 
of  living  of  the  most  expensive  laborer  is  to  be 
taken  as  the  determinant  of  wages,  the  standard 
must  be  that  of  the  least  efficient,  not  of  the  most 
efficient.  Mr.  Gunton  adduces  in  support  of  his 
contention  the  fact  the  native  workman  in  Amer- 
ica, who  has  the  higher  American  standard  of 
living,  can  barely  do  as  much  as  make  both  ends 
meet ;  while  the  immigrants,  with  a  lower  standard, 
can,  on  the  same  wages,  save  money  and  accumu- 
late property.  "  What  the  most  expensive  por- 
tion of  a  given  class  must  receive  the  balance 
may  and  will  receive,  "f  In  this  way  the  law  is 
given  determining  power  and  to  the  great  body  of 
labor  becomes  beneficent.  All  those  whose  standard 
falls  short  of  the  highest  can,  according  to  their 
ideas,  live  on  their  wages  in  comparative  affluence, 
while  only  a  select  few  feel  the  pinch  of  circum- 
stances. "  There  is  nothing,"  he  continues, J:  "  in 
the  nature  of  this  law  to  prevent  .lie  rate  of  wages 
from  rising  to  five  thousand  dollars  as  well  as  to  five 
hundred  dollars  a  year."  And  the  fact  that  there 
is  nothing  in  the  law  to  prevent  or  to  show  that 
such  a  rise  under  any  known  conditions  is  impos- 
sible, shows  the  law  to  be  comparatively  meaning- 


*  Marshall,  Principles  of  Economics,  p.  567. 
f  Gunton's  Wealth  and  Progress  p.  89. 


X  Ibid.^  p.  90, 


36 


TJic  Bargain  Theory  of  Wages. 


% 


\  11 - 

r 


M 


■• 


>'    ,i 


I  I 


(     ,  , 


I 


I' 


less.  The  total  national  dividend  out  of  which  the 
expenses  not  of  the  working  classes  only,  but  of  the 
whole  of  society  must  be  met  is  not  sufficient, 
divided  share  and  share  alike,  to  give  such  an  aver- 
age wage.  No  doubt  from  an  increased  product, 
and  out  of  a  larger  national  dividend,  a  larger  abso- 
lute, if  not  also  a  larger  relative  share,  may  go  to 
labor;  and  a  higher  standard  of  living  among  the 
working  classes  will  no  doubt  result  in  an  increase 
of  efficiency  and  indirectly,  through  consumption, 
make  it  possible  to  pay  high  wages ;  but  the  increase 
arising  in  this  way  will  not  be  very  great.  The  in- 
crease of  the  product  of  industry  which  has  taken 
place  within  the  last  forty  years  has  been  due,  per- 
haps, more  to  the  increased  use  of  capital  in  manu- 
facturing than  to  an  increase  in  the  efficienc''  of 
labor;  and  there  is  no  reason  whatever  foi  .up- 
posing  that  there  will  be  in  the  future  a  greater  pro- 
portional increase  of  efficiency  than  there  has  been 
in  the  past.  At  any  rate  a  rise  of  the  average  wage 
to  five  thousand  dollars  a  year  can  be  rendered  pos- 
sible only  by  an  enormous  increase  of  efficiency: 
directly,  the  standard  of  living  alone,  however 
powerful  as  a  determinant  of  wages,  is  quite  in- 
capable of  raising  average  wages  to  even  the  fifth  of 
that  sum.  The  optimism  of  this  practical  form  of 
the  theory  is  so  extreme  that  it,  in  effect,  denies 
that  there  is  any  labor  question  at  all.  The  prob- 
lems of  distribution  arise  only  because  the  national 
dividend  is  limited  in  amount.  Mr.  Gunton  not 
only  ignores  the  existence  of  other  claimants  for  a 


The  Demand  for  Labor. 


37 


share  of  the  dividend,  but  assumes  that  the  dividend 
itself  is  large  enough  to  make  it  possible  for  the 
working  classes  to  raise  their  demands  indefinitely 
and  have  them  met.  It  is  true  that  if  the  efficiency 
of  industry  is  increased  by  a  rise  in  the  standard  of 
living  a  larger  average  wage  may  be  paid ;  but,  in 
thus  arguing,  we  have  abandoned  the  original  theory 
of  wages  and  adopted  in  its  place  a  modified  form 
of  the  later  theory  which  makes  the  productivity  of 
labor  the  measure  of  wages. 

A  more  serious  defect  in  Mr.  Gunton's  theory  is 
that,  in  order  to  obtain  that  permanence  in  the 
standard  to  make  it  the  final  determinant  of  wages, 
he  entirely  ignores  the  demand  for  labor.  He 
writes  as  if  he  had  adopted  without  qualification 
the  trade-union  and  working-class  fallacy  of  the 
Lump  of  Work,  which  is,  that  there  is  a  certain 
amount  of  work  to  be  done  which  will  be  done  no 
matter  what  the  cost.  Demand,  as  Mill  pointed 
out,  though  he  forgot  his  own  distinction  when  he 
wrote  on  wages,  is  always  relation  to  price ;  and  if 
labor  has  a  supply  price  it  has  also  a  demand  price. 
The  existence  of  a  demand  price  must  very  seriously 
affect  the  ability  of  the  working  classes  to  determine 
wages  according  to  their  wishes,  if  the  demand 
were  fixed  and  invariable,  the  permanence  of  the 
standard  of  life  could  be  assumed  and  the  higher 
standard  would,  as  Mr.  Gunton  claims,  determine 
the  wages  for  all.  In  an  open  market  all  labor  of 
the  same  degree  of  efficiency  will  be  paid  at  the  one 
rate.     If  the  demand  is  sufficient,  and  will  remain 


!■! 


38 


7//t         'gain  TJicory  of  Wages. 


P 


!  ■• 


lli 


i: 


under  all  conditions  sufficient  to  carry  off  the  sup- 
ply, the  rate  of  wages  will  be  determined  by  the 
supply  price  of  the  most  expensive  portion.  But 
what  happens  if  the  demand  is  not  fixed  and,  under 
given  conditions,  is  not  sufficient  to  carry  off  all  the 
supply  ?  The  first  effect  is  a  trial  of  strength  be- 
tween the  standard  and  the  tendency  of  wages  to 
fall.  The  laborers  with  the  highest  standard,  ac- 
cording to  Mr.  Gunton,  being  the  marginal  laborers, 
will  be  the  first  to  go.  If  the}^  are  willing  to  accept 
a  lower  wage  which,  ex  hypothesi,  is  too  low  to  cover 
their  expenses,  they  have  the  same  chance  of  em- 
ployment as  the  others.  If  they  obstinately  hold 
by  their  standard  they  may  find  themselves  out  of 
work;  and,  though  it  is  labor  that  is  bought  and 
sold,  the  laborer  must  live  by  the  price  of  labor. 
There  is  a  great  strength  in  the  position  of  any  bar- 
gainer who  stands  out  for  a  price ;  and,  other  things 
being  equal,  he  is  likely  to  obtain  the  price  he  de- 
sires. But  in  the  case  of  labor  other  things  are 
not  equal;  and  the  only  force  on  whose  operation 
the  laborer  can  depend  to  make  good  his  demand  is 
the  difficulty  the  buyer  of  labor  has  in  finding  a  sub- 
stitute which  will  serve  his  purpose  equally  well. 
No  man  can  claim  to  be  indispensable,  and  the  in- 
convenience there  is  in  finding  a  substitute  for  an 
unwilling  workman  is  never  very  great.  The  mar- 
ginal laborer  must,  therefore,  when  the  demand  for 
labor  falls  off,  either  lower  his  demands  or  be  con- 
tent to  stand  aside ;  for,  by  Mr.  Gunton's  hypothesis, 
the  marginal  laborers  are  few  in  number,  and  noth- 


The  Necessities  of  the  Laborer. 


39 


ing  has  been  said  about  efficiency.  If  the  standard 
for  which  a  struggle  is  being  made  has  been  adopted 
by  thousands,  and  if  each  laborer  of  the  thousands 
is  resolutely  steadfast  in  demanding  a  wage  which 
will  enable  him  to  live  up  to  the  standard,  a  proposal 
to  reduce  wages  may  be  successfully  resisted,  be- 
cause the  trouble  and  inconvenience  of  finding  sub- 
stitutes for  so  many  is  very  great.  This  is  probably 
one  reason  why  it  has  been  possible  to  maintain  the 
American  standard  of  living  in  spite  of  the  compe- 
tition of  low-class  immigrant  labor. "'^' 

The  solution  of  the  difficulty,  however,  is  not  far 
to  seek.  The  marginal  laborer  is  not  necessarily 
the  laborer  with  the  highest  standard  of  living. 
Experience,  on  the  contrary,  shows  that  the  mar- 
ginal laborer  is  almost  invariably  the  laborer  with  a 
low  standard.  The  employer  takes  into  account 
when  he  buys  labor  the  efficiency  of  what  he  buys ; 
and  thus  there  is  a  demand  price  as  well  as  a  sup- 
ply price.  The  standard  of  living  is  therefore  not 
the  sole  determinant  of  wages.  In  the  absence 
of  a  fixed  demand  for  labor,  the  standard  of  the 
laborer  is  not  stable  and  permanent  enough  to  make 
it  impossible  for  wages  to  fall  below  what  will  admit 
of  this  standard.  The  force  on  which  the  laborer 
must  rely  to  obtain  what  he  demands  is  not  the 
strength  of  his  desires,  his  wants,  or  his  habits,  but 
the  inevitable  inconvenience  to  the  employer  in  re- 
placing him.  If  the  standard  has  been  widely 
adopted,  and  is  strenuously  maintained,  the  incon- 

*See  the  chapter  on  the  Migration  of  Labor, 


n    : 


i 


ii  i 


40 


T/w  Bargain  Theory  of  Wages, 


vcnicncc  may  be  so  great  as  to  counterbalance  the 
possible  gain  to  the  employer  from  a  deduction  of 
wages.  The  standard  of  living  is  thus  not  a  mini- 
mum below  which  wages  cannot  in  any  event  fall, 
but  a  conception  which  each  laborer  has  formed  of 
his  own  merits  or  of  what  his  labor  is  worth  and  by 
which  he  is  prepared  to  stand.  If  need  be  he  will 
accept  less,  as  a  merchant  may  sell  his  goods  for  less 
than  cost  to  avoid  a  greater  loss;  but  the  laborer 
will  be  as  anxious  as  the  merchant  to  avoid  this  con- 
tingency, lie  can  accept  less  temporarily,  because 
he  can  support  physical  life  on  less ;  but  the  more 
firmly  he  is  attached  to  his  standard  the  greater  the 
resistance  he  will  oppose  to  any  attempt  to  force 
wages  below  it.  He  is  not  invariably  successful  in 
his  opposition,  as  the  strike  returns  show.  He  is 
apparently,  however,  almost  as  often  successful  as 
unsuccessful.  The  peculiar  position  of  the  laborer 
probably  renders  it  more  difficult  for  him  than  for 
other  vendors  to  enforce  his  estimate  of  what  he 
sells.  In  many  cases  the  seller  of  a  commodity  may 
withdraw  part  of  the  supply,  as  the  Dutch  planters 
destroyed  the  spices;  but  the  laborer  has  not  the 
same  freedom.  It  is  generally  asserted  that  every 
laborer  must  work  and  must  work  immediately ;  and 
that  consequently  he  is  dependent  for  enforcing 
his  estimate  of  what  he  sells  on  the  effect  which 
the  prospect  of  inconvenience  has  on  the  mind  of 
his  employer.  How  far  the  assertion  is  correct  we 
shall  inquire  in  next  chapter;  for  this  is  one  of  the 
cardinal  propositions  of  the  Wagf^s-Fund  Theory. 


CHAPTER   II. 


THE   WAdKS-FUND   THEORY. 

IT  is  hardly  possible  to  draw  a  rigid  line  of  distinc- 
tion between  the  Subsistence  Theory  and  the 
Wages-Fund  Theory ;  for  the  two  theories  are  not 
mutually  exclusive,  and  indeed,  sometimes,  are  held 
by  the  same  writer.  The  distinction  is  to  a  large  ex- 
tent a  matter  of  the  relative  emphasis  laid  by  the  par- 
ticular writer  on  the  separate  terms  of  Ricardo's  con- 
trast between  market  and  natural  wages.  Natural 
wages,  he  had  described  as  being  such  as  would 
maintain  the  race  of  laborers,  and  such  as  would  be 
paid  in  a  stationary  society.  Market  wages,  on  the 
other  hand,  may,  in  an  improving  society,  for  an  in- 
definite period,  be  constantly  above  the  natural  rate; 
and  society  during  the  first  half  of  this  century  was 
distinctly  improving.*  Ricardo  had  developed,  with 
proper  emphasis  and  with  the  proper  theoretical  ex- 
ceptions, the  theory  of  wages  which  explained  the 
industrial  situation  down  to  his  own  period ;  and  it 

*  The  improvement  was  not  continuous,  nor  was  it  so  marked  in 
some  departments  as  in  others,  but,  nevertheless,  the  characteristic  of 
the  half-century  was  progress. 

41 


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42 


77/^  Bargain  Theory  of  Wages, 


was  to  be  expected  that  when  industrial  conditions 
changed  for  tiie  better  the  theory  of  wages  would 
also  become  less  pessimistic.  After  the  close  of  the 
war  period  it  was  seen  that  wealth  was  increasing 
faster  than  population;  and  Ricardo's  theoretical 
case  was  consequently  everywhere  actually  realized. 
Market  wages,  therefore,  rather  than  natural  wages 
was  the  subject  of  discussion  and  investigation,  and 
the  theory  of  wages  which  was  gradually  formulated 
by  economists  between  Ricardo  and  J.  S.  Mill  was 
explicitly  a  theory  of  market  wages.  The  doctrine 
of  natural  wages  was  not  rejected.  It  still  formed  a 
gloomy  background.  Natural  wages  were  the  mini- 
mum to  which  the  incontinence  of  the  working 
classes  might  reduce  wages;  but  it  was  not  consid- 
ered necessary  to  discuss  the  minimum  in  the  course 
of  the  treatment  of  market  wages,  any  more  than  a 
publicist  would  consider  it  necessary  to  interpolate 
a  reference  to  physical  force  in  a  treatise  on  repre- 
sentative government.  An  exaggerated  Malthusian- 
ism  made  it  possible  to  maintain  the  older  theory 
while  discussing  the  new. 

It  might,  in  a  sense,  have  been  possible  even 
without  the  assistance  of  the  Malthusian  doctrine  to 
maintain  both  theories;  for  each  attacks  a  different 
part  of  the  Wages  Question.  Wages  may  be  con- 
sidered from  two  points  of  view — as  the  share  of  the 
product  or  income  of  society  which  is  ultim,  *:ely 
allotted  to  labor,  or  as  the  amount  of  the  commoai- 
ties  ready  for  consumption  which  the  individual 
laborer  is  able  to  obtain.    The  problems  of  wages,  and 


General  Wages  and  Wages  per  Head.  43 


wages  per  head,  arc  quite  distinct.  The  first  involves 
a  discussion  of  general  wages  which  may  result  in  a 
discussion  of  average  wages,  and  the  second  a  discus- 
sion and  description  of  the  causes  why  A's  wages  arc 
such  and  such,  and  more  or  less  than  B's.  The 
Wages-Fund  Theory  discusses  the  problem  of  gen- 
eral wages  fully,  but  adds  little  or  nothing  to  the 
discussion  of  particular  wages.  It  is  a  theory  re- 
garding the  source,  ultimate  or  derivative,  from 
which  wages  are  paid,  rather  than  a  theory  explain- 
ing the  actual  differences  of  wages  received.  The 
Wages-Fund  Theorists  do  incidentally,  and  some- 
times in  lengthy  chapters,  discuss  the  causes  of  the 
difference  of  wages;  but  the  treatment  they  give  to 
the  problem  is  avowedly  supplementary.  The  sub- 
sistence theory,  on  the  other  hand,  is,  in  the  main, 
a  theory  of  particular  wages.  While  the  minimum 
was  interpreted  strictly  as  a  physical  minimum,  the 
early  theory  may  be  regarded  as  dealing  both  with 
particular  and  with  general  wages.  The  same  cause 
which  determined  general  wages  also  determined 
— accidents  and  theoretical  exceptions  apart — the 
wages  which  each  man  received.  With  every  change 
in  the  direction  of  the  recognition  of  the  stand- 
ard of  life  as  elastic,  the  subsistence  theory  became 
more  and  more  a  theory  of  particular  wages;  and 
the  general  problem  was  neglected.  The  problem 
of  the  determination  of  the  particular  wages  is  un- 
doubtedly the  more  interesting  of  the  two,  but  it 
is  barren  of  scientific  results.  The  causes  of  the 
differences  of  wages  are  so  various  that  an  investiga- 


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44 


The  Bargain  Theory  of  Wages. 


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tion  of  them  will  not  readily  yield  any  law  of  more 
than  temporary  and  local  significance.  The  diver- 
sion of  the  attention  of  economists  from  particular 
to  general  wages,  though  it  .lade  political  economy 
abstract  and  "  dismal,"  was  a  real  gain  to  economic 
theory.  When  the  growing  prosperity  of  the  nation 
caused  the  abandonment  of  the  notion  that  the 
standard  of  life  was  fixed  and  permanent,  the  scien- 
tific value  of  the  early  theory  went  out  of  it ;  and  it 
became,  as  was  said  above,  merely  a  theory  of  par- 
ticular wages.  The  Wages-Fund  Theory  took  up 
the  scientific  problem  and  devoted  itself  mainly  to 
a  discussion  of  the  source  from  which  wages  are 
paid  and  of  the  laws  which  govern  the  amount  of 
the  wages  fund.  It  makes  no  contribution  which 
is  worth  serious  consideration  to  the  discussion  of 
particular  wages.  It  gives  us  merely  an  arithmetical 
average  which  has  no  practical  bearing,  and  a  general 
enunciation  that  particular  wages  can  only  rise  or  fall 
at  the  expense  of  other  wages.  Mill,  indeed,  does 
give  a  supplementary  chapter  (in  which  he  follows 
Adam  Smith  very  closely)  to  a  discussion  of  the 
cav  :;es  of  differences  in  wages,  but  the  causes  he  finds 
at  work  do  not  find  their  ultimate  explanation  in  the 
Wages-Fund  Theory.  The  problem  of  general  wages 
is  the  only  one  of  scientific  importance  and  it  is  highly 
desirable  that  the  two  problems  should  be  kept 
distinct;  but  it  is  not  desirable  that  the  solutions 
of  the  separate  problems  should  have  no  connec- 
tion the  one  with  the  other.  The  particular  causes 
of  the  differences   in   wages   should   be   shown  to 


Wages-Fujid  Theory  and  Particular  Wages.     45 


be  cases  under  the  law  of  general  wages  and  not 
treated  as  if  they  were  independent  laws  of  wages. 
The  Wages-Fund  Theory  has  no  place  for  these 
particular  laws;  and  it  treats  them  as  if  they 
were  supplementary  laws  brought  in  to  explain 
what  the  Wages-Fund  Theory  cannot  be  made  to 
explain.  The  Wages-Fund  Theory  was  undoubt- 
edly thought  to  explain  particular  wages.  It  was 
constantly,  in  its  popular  version  (or  perversion), 
used  as  an  argument  against  trade-unions,  for  in- 
stance, and  the  possible  influence  of  trade-unions  on 
particular  wages;  and  Mill  himself,  when  he  pro- 
poses to  discuss  facts  in  apparent  contradiction  with 
the  theory,  virtually  makes  the  claim  that  the  gen- 
eral law  of  wages  does  include  and  explain  the  par- 
ticular causes  of  the  actual  variations  in  wages.  But 
his  explanations  are  either  unconvincing,  if  consistent 
with  his  general  theory,  or  inconsistent  with  the 
theory  if  convincing. 

The  Subsistence  Theory  and  the  Wages-Fund 
Theory  are,  however,  as  we  saw,  not  mutually  ex- 
clusive, and  the  latter  theory  was  developed  too 
closely  under  the  influence  of  the  Malthusian  doc- 
trine ever  to  be  placed  in  opposition  to  the  earlier 
theory.  Ricardo  had  defined  capital  as  "  that  part 
of  the  wealth  of  a  country  which  is  employed  in  pro- 
duction, and  consists  of  food,  clothing,  tools,  raw 
material,  machinery,  etc.,  necessary  to  give  effect  to 
labor"*;  and,  since  the  most  obvious  way  in 
which  capital  is  "  necessary  to  give  effect  to  labor  " 

*  Ricardo,  Principles,  p.  72. 


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46 


77/r  Bargai?i  Theory  of  Wages. 


lies  in  supplying  the  laborer  with  the  means  of  living 
during  the  extended  process  of  production,  Ricardo, 
to  whose  analytic  mind  the  less  essential  was  the 
practically  non-existent,  naturally  came  to  resolve 
all  capital  into  food.  Thence  it  was  but  a  step, 
and,  under  the  influence  of  Malthus,  an  easy  step, 
to  the  position  that  wages  depended  at  any  moment 
on  the  proportion  of  the  amount  of  food  or  capital 
to  the  number  of  laborers  in  the  community;  and 
this  is  the  essential  doctrine  of  the  Wages-Fund 
Theory.  The  progress  of  the  working  classes  had 
taken  away  from  the  subsistence  theory  that  ele- 
ment of  necessity  and  permanence  which  it  ap- 
peared to  possess  in  the  notion  of  a  physical  mini- 
mum; and  Ricardo's  definition  and  use  of  the  term 
capital  seemed  to  give  back  again  the  element  of 
necessity  which  had  been  lost.  The  older  form  of 
the  theory  had  relied  on  the  absoluteness  of  the 
principle  of  population;  but,  with  admission  of  a 
moral  check,  no  permanent  obstacle  to  an  indefinite 
rise  of  wages  seemed  to  remain.  But,  when  Ricardo 
accepted  unquestioned  the  assumption  made  by 
Adam  Smith  that  wages  were  paid  out  of  capital, 
and  practically  limited  capital  to  the  food  necessary 
to  give  effect  to  labor,  a  new  and  inexorable  limit 
and  obstacle  could  be  placed  to  the  rise  of  wages. 
The  intention  of  the  capitalist,  who  had  the  right 
to  do  what  he  liked  with  his  own,  rather  than  the 
continence  of  the  working  classes,  became  the  real 
determining  force.  Thus  again  the  law  of  wages 
was  made  to  depend  on  a  force  strong  enough  to 


The  Wages-Fund  Theory. 


47 


bring  it  into  operation  as  a  determinant  of  wages; 
and  the  discarded  physical  minimum  could  be  rele- 
gated to  the  background  as  a  theoretical  minimum. 
The  intention  of  the  capitalist  laid  down  a  practical 
and  a  necessary  maximum  beyond  which  wages 
could  not  rise.  The  Wages-Fund  Theory  which 
was  thus  established  is  the  second  scientific  theory ; 
because  it  recognizes  that  a  law  of  wages  must  be 
more  than  the  pious  opinion  of  an  economist. 

The  Wages- Fund  Theory  is  a  theory  of  supply 
and  demand,  and  naturally  discusses  the  supply  of 
labor,  and  the  demand  for  labor,  and  the  force 
which  brings  about  an  equilibrium  between,  or  equa- 
tion of  supply  and  demand.  The  theory  may  be 
conveniently  formulated  in  three  propositions  deal- 
ing with  these  three  subjects. 

The  first  proposition  dealing  with  the  supply  of 
labor  may  be  thus  stated :  There  is  a  determinate 
number  of  laborers,  at  any  given  time,  who  must 
work  independently  of  the  rate  of  wages,  /.  e., 
whether  the  rate  be  high  or  low.  Taken  without 
the  limitations  generally  stated  by  the  Theorists, 
there  is  a  very  large  measure  of  truth  in  this  propo- 
sition. The  compulsion  of  necessity  drives  men  to 
labor.  "  Many  workmen  could  not  subsist  a  week, 
few  could  subsist  a  month,  and  scarce  any  a  year, 
without  employment'^;"  and  the  same  necessity 
lies  upon  autonomous  laborers  as  upon  hired  labor- 
ers, although  the  degree  of  compulsion  to  imme- 
diate work  may  not  be  so  great.     The  Wages-Fund 

*  IVealth  of  Nations,  p.  28. 


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48 


T/ie  Bargain  TJicory  of  Wages. 


W   \ 


Theory,  however,  qualifies  the  importance  of  this 
proposition  by  expressly  excluding  from  considera- 
tion all  but  those  who  work  for  hire.  The  determi- 
nate number  of  those  who  must  work  includes  those 
only  who  work  for  hire.  Autonomous  producers 
and  those  who  render  immediate  services  are  not  in- 
cluded in  the  number.  Adam  Smith  had  expressly 
excluded  the  latter  class,  and  Ricardo  followed  his 
example,  probably  without  reflecting  on  the  extent 
of  the  class  excluded.  The  \Vages-F\ind  Theorists, 
in  spite  of  their  probably  wider  historical  knowledge, 
followed  Ricardo.  The  essence  of  the  argument 
they  based  on  this  proposition  is  that,  since  the 
number  of  laborers  obviously  cannot  be  immediately 
increased,  and,  owing  to  the  compulsion  which  lies 
on  all  laborers  to  work  to  live,  is  not  subject  to 
diminution,  the  supply  of  labor  may,  therefore,  at 
any  given  time,  be  taken  as  fixed.  But  the  boun- 
daries between  those  classes  cannot  be  regarded  as 
permanently  fixed.  Under  normal  conditions,  when 
demand  and  supply  are  adjusted  to  each  other  in 
each  of  the  three  classes,  there  may  be  little  irregu- 
lar transfer;  but  when  industry  fluctuates,  the  trans- 
fer from  the  one  class  to  the  other  may  be  great. 
There  is  no  inherent  difficulty  in  the  way  of  this 
transfer  as  there  is  in  the  case  of  the  mobility  of 
labor  between  trades.  A  man  may  still  work  at  his 
trade  whether  he  works  at  the  bidding  of  another  or 
on  his  own  account.  A  shoemaker  is  still  a  shoe- 
maker whether  he  works  in  his  own  stall  or  in  an 
employer's  workshop.     Peasant  proprietors  are  not 


Is  the  Supply  of  Labor  Dctvrniinatc  ?         49 


the  only  autonomous  producers.  There  are  still 
large  numbers  of  jobbing  artisans,  especially  in  the 
smaller  towns;  and  many  of  these  are  found  now 
working  for  themselves,  and  now  at  the  bidding  of 
another.*  When  wages  are  high  they  may  enter 
the  class  of  hired  laborers;  when  wages  are  low, 
they  may  work  for  their  own  behoof;  or,  vice  versa, 
according  to  the  disposition  and  temperament  of  the 
individual.  The  class  of  laborers,  moreover,  who 
render  immediate  services,  is  not,  in  the  present  day, 
absolutely  distinct  from  the  class  of  hired  laborers. 
In  Adam  Smith's  day  the  feudal  spirit  was  not  quite 
extinct;  and  every  nobleman  had  a  large  number  of 
retainers  to  support  his  dignity.  These  retainers 
were,  in  every  sense,  unproductive,  and  could  not 
on  occasion  seek  employment  as  hired  laborers. 
Servants,  however,  in  the  present  day  are  generally 
engaged  for  economic  purposes ;  and  many  of  them 
are  quite  capable  of  finding  employment  as  hired  la- 
borers. Instead  of  employing  a  gardener  or  a  coach- 
man by  the  year,  one  may  hire  him  by  the  day  or 
the  week ;  and  the  gardener  may  employ  the  rest  of 
his  time  working  for  hire  in  a  nursery,  or  market 
garden,  or  on  his  own  behoof;  and  the  gardener  is 
the  type  of  a  comparatively  large  class.  The  wages 
of  domestic  servants  have  risen,  in  consequence  of 
the  attraction  of  female  labor  to  the  factories ;  while 


!'■ 


k 


*  The  development  of  iiulustry  on  a  large  scale  has  been  accom- 
panied by  an  increasing  transfer  of  laborers  from  the  autonomous  to 
the  hired  class  :  but  this  movement  has  been  so  regular  and  so  long 
continued  that  it  may  be  considered  normal. 


50 


The  Bargain  Theory  of  Wages. 


I 


t;. 


depression  of  trade  drives  many  from  the  industrial 
to  the  service  class  at  least  for  the  time  being.  The 
prolonged  business  depression  in  the  United  States 
following  the  panic  of  1893  has  diverted  a  large  por- 
tion of  the  new  supplies  of  labor  from  business  to 
the  professions ;  and  in  one  profession  at  least — uni- 
versity teachers — salaries  are  falling  in  consequence. 
The  prospect  of  certainty  has,  for  the  time  being, 
more  than  offset  the  attractions  of  the  chances  of 
success. 

Thus,  though  it  were  true  that  the  number  of 
those  who  must  work  is  determinate,  it  does  not 
follow  that  the  number  of  those  who  must  work  for 
hire  is  determinate.  But  the  number  of  those  who 
seem  committed  to  labor  is  not  altogether  determi- 
nate. There  seems  to  be  a  margin  of  labor  (not 
necessarily  a  large  margin)  which  works  or  not  ac- 
cording to  the  inducement.  We  do  not  refer  to 
the  out-of-work  members  of  a  trade-union,  for  the 
Theorist  will  rightly  point  out  that  the  number  of 
laborers  is  only  nominally  smaller^  if  those  who  work 
support  those  who  do  not  work.  But  if,  and  in  so 
far  as,  those  who  are  out  of  work  are  supported,  not 
by  the  trade-union  funds  but  by  public  or  private 
charity,  the  burden  of  their  support  is  borne  by  the 
community  at  large,  and  probably  mainly  by  those 
members  of  the  community  who  are  not  included 
within  the  class  of  hired  laborers.  The  numbers  of 
men  in  receipt  of  poor  relief  vary  considerably ;  and 
these  fluctuations  show  that  the  first  proposition  of 
the  Wages-Fund  Theory  requires  some  qualification. 


.■J 


The  Supply  of  Labor. 


51 


The  Theory,  however,  claims  to  be  primarily  a 
theory  of  the  demand  for  labor.  "  The  causes  gov- 
erning the  supply  of  labor  may  be  taken  as  suffi- 
ciently elucidated.  Our  business  is  with  the  causes 
governing  demand — governing  the  amount  of  wealth 
applied  to  the  direct  purchase  of  labor,  or,  as  we 
may  equally  well  express  it,  governing  the  Wages- 
Fund.  ' '  *  The  causes  governing  the  supply  of  labor 
are  set  forth  in  the  doctrine  of  population  and,  on 
the  whole,  we  are  asked  to  consider  the  supply  of 
labor  which  must  work  as  given  independently  of 
the  demand. 

The  supply  of  labor  is  regarded  as  determinate, 
because  laborers  must  work  and  cannot  stand  out  for 
their  price ;  but  it  does  not  necessarily  follow  that, 
because  all  laborers  must  work  to  live,  their  objec- 
tion to  work  for  lower  wages  than  they  have  been 
accustomed  to,  can  have  no  effect  on  the  price  of 
labor.  This  inference,  however,  is  drawn  by  all  the 
exponents  of  the  theory.  Mill,  indeed,  does  recog- 
nize briefly,  in  passing,  in  his  chapter  on  profits,  that 
the  advance  of  wages  is  regulated  by  the  productive 
power  of  labor.  The  motive  which  the  capitalist 
has  in  advancing  wages  is  not  philanthropic  but 
economic ;  and  his  advances  are  governed  by  the 
anticipated  surplus  of  the  product  over  the  advances 
he  must  make  to  labor.  Profit,  therefore,  depends 
on  the  productiveness  of  labor;  and  the  laborer  is 
therefore  not  a  merely  passive  factor  in  the  wages- 
bargain.     The  laborer  must  work,  but  it  is  the  em- 

♦  Cairnes,  Leading  Principles,  p.  i6l. 


m 


52 


T/ic  Bargain  Theory  of  Wages. 


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ployer's  interest  that  he  should  work.  Therefore 
the  objection  to  a  large  number  of  laborers  to  sub- 
mit to  a  reduction  of  wages  has  an  undoubted  in- 
fluence on  the  employer's  intentions.  To  reduce 
wages  in  spite  of  the  objections  of  the  laborers  is 
indeed  always  possible ;  but  it  is  not  always  profit- 
able; and  an  employer  may,  owing  to  these  objec- 
tions, continue  to  pay  higher  wages  than  he  might 
otherwise  succeed  in  forcing  his  employees  to  accept. 
The  reason  is  that,  as  Mill  himself  has  pointed  out, 
the  mental  and  moral  qualities  of  the  laborer  affect 
the  productiveness  of  his  labor;  and  hope  and  con- 
tentment are  two  of  the  most  important  of  these 
qualities.  "  The  wages  of  labor  are  the  encourage- 
ment of  industry,  which  like  every  other  human 
quality  improves  in  proportion  to  the  encourage- 
ment it  receives.  .  .  .  When  wages  are  high, 
accordingly,  we  shall  always  find  the  workmen  more 
active,  diligent,  and  expeditious  than  when  they  are 
low."  *  To  ignore  his  objections  may  make  a  work- 
man discontented,  and  a  discontented  workman  is 
seldom  as  efficient  as  he  might  be.  But  the  fact  of 
the  ultimate  regulation  of  wages  by  the  surplus 
which  the  employer  hopes  to  realize  was  not  con- 
sistently recognized  cither  by  Mill  or  by  any  other 
Theorist.  The  Wages-Fund  Theory  is,  therefore, 
entirely  a  theory  of  the  demand  for  labor — the  sup- 
ply being  regarded  as  fixed  and  the  laborer  merely 
as  the  recipient  of  wages. 

*  Wealth  of  N'ationSy  p.   34.     For  a  further  discussion  of  this 
question  see  the  chapter  on  Trade-Unionism. 


Capital  and  Wages. 


53 


The  first  proposition  has  not  bcLMi  seriously,  or 
intelligently,  called  in  question,  but  the  second  has 
provoked  endless  discussion  and  criticism.  It  em- 
bodies the  central  doctrine  of  the  Theory,  and  may 
be  stated  thus:  In  any  country,  at  any  given  time, 
there  is  a  determinate  amount  of  capital  uncon- 
ditionally destined  to  the  payment  of  labor;  and 
this  is  called,  for  shortness,  the  Wages  Fund. 

The  basis  of  this  proposition  is  the  assumption 
made  by  Adam  Smith,  and  adopted,  unquestioned, 
from  him  by  all  economists  for  a  hundred  years,  that 
wages  are  paid  out  of  capital.  This  is,  perhaps,  not 
the  best  way  of  expressing  the  important  phenome- 
non to  which  attention  is  called,  that  the  hired 
laborer  receives  not  an  immediate  but  a  derivative 
share  of  the  product  of  industry.  Adam  Smith 
evidently  did  not  think  that  the  assumption  required 
either  explanation  or  justification ;  and,  although 
both  he  and  the  chief  of  his  successors  pointed  out 
the  reason,  in  the  organization  of  industry,  why  this 
should  be  so,  they  did  not  develop  the  reason  so  far 
as  to  show  conclusively  the  necessity  of  the  assump- 
tion. The  process  of  production  is  spread  over  a 
long  period  of  time  and  the  main  function  of  capital 
is  to  permit  this  extended  process.  We  need  not 
attempt  to  determine  whether  or  not  it  is  a  law,  or 
merely  an  observed  fact  of  modern  industry,  that 
the  progress  of  industry  should  mean  the  expansion 
of  the  period  between  the  time  when  the  first  steps 
of  production  are  taken  and  the  time  when  the  com- 
modity is  finally  in  the  hands  of  the   consumer. 


m 


iiJ 


'i 


If 


i  Iji  i 


54 


TIte  Bargain  Theory  of  Wages. 


,  \\ 


It   j 


Ever  since  economists  combined  to  reject  the  physio- 
cratic  distinction  between  productive  and  unproduc- 
tive labor,  more  or  less  adequate  recognition  has 
been  given,  in  theory,  to  tne  fact  of  long-period 
production.  It  does  not  require  now  even  an  effort 
of  the  economic  imagination  to  realize  how  little 
of  the  labor  of  to-day  has  been  engaged  in  produc- 
ing what  will  be  ready  for  use  to-morrow.  A  com- 
modity is  not  finally  completed  until  the  retailer 
has  put  into  it  the  utility  of  being  where  it  is 
wanted,  and  it  is  in  the  hands  of  the  consumer. 
Only  a  comparatively  small  number  of  laborers  are 
employed  in  giving  the  final  touches  to  a  com- 
modity, and  usually  the  completed  product  of  one 
industry  is  the  raw  material  of  another.  Whether 
it  takes  one  year  or  five  years  or  ten  years  to  bring 
a  commodity  from  its  earliest  stages  to  the  hands  of 
the  consumer  is  not  a  matter  of  much  moment :  the 
essential  point  is  that,  in  every  case,  it  does  take  a 
long  time.  The  length  of  the  period  is,  in  part, 
concealed  from  us  by  the  fact  that  under  no  circum- 
stances is  a  commodity  brought  thus  far  by  one 
worker  or  group  of  workers  alone.  Each  worker, 
or  group  of  workers,  disposes  of  the  product  to  the 
workers  of  the  next  stage ;  and  so  far  as  they  are 
concerned,  the  process  of  production  is  complete. 
But  the  final  product  is  the  product  of  successive 
stages ;  although,  for  the  sake  of  brevity  (ignoring  the 
subsequent  services  of  the  transporter,  the  merchant, 
and  the  retailer),  we  generally  speak  of  the  last  pro- 
ducer in  the  series  as  the  maker  of  the  commodities. 


Real  I  Vagcs  and  the  National  Dividend.        5  5 


The  importai-KTC  of  this  fact  of  the  theory  of  wages 
is  that,  at  any  time,  only  a  small  proportion  of  the 
agents  of  industry  can  be  engaged  in  turning  out 
commodities  which  are  immediately  consumable. 
Since  real  wages  consists  of  commodities  ready  for 
immediate  consumption,  wages  must  be  paid  out  of 
the  stock  of  consumable  commodities  and  paid  by 
those  who  own  the  stock.  The  great  majority  of 
wage-earners,  then,  cannot  be  paid  out  of  the  im- 
mediate product  of  their  own  labor  because  the  goods 
they  are  engaged  in  advancing  one  stage  towards 
completion  are  not  in  a  condition  to  satisfy  imme- 
diately any  human  want  whatsoever.  The  real 
wages  they  receive  must  come  out  of  the  stock  of 
completed  commodities  which  has  been  called  the 
national  dividend.  There  is  no  other  source  from 
which  wages  can  be  paid. 

Whether  wages  are  paid  out  of  capital  is  the  ques- 
tion whether  goods  ready  for  the  consumer  are  or 
are  not  capital.  Ricardo  had  defined  capital  in  such 
a  way  as  practically  to  limit  it  to  the  food  necessary  to 
give  effect  to  labor;  and,  with  or  without  a  conscious 
ellipsis,  his  definition  was  adopted  by  most  econo- 
mists. Food  is  the  typical  consumption  commodity, 
and  wages  are  therefore  paid  out  of  capital.  The 
almost  exclusive  attention  of  economists  down  to 
the  time  of  Mill  to  the  problems  of  production  had 
made  it  possible  for  them  to  regard  wages  simply 
as  a  means  to  further  production.  Mill  did  declare 
that  all  wealth  is  consumed;  but  the  emphasis  he 
laid  on  this  proposition  did  not  enable  him  always 


^ 


' ;  i  I  !  I 


-ill 


!■■  I  II 


56 


T/ic  Bargain  TJicory  of  Wages. 


■♦     ;, 


and  consistently  to  rcco^jnize  that  consumption  is 
an  end  in  itself.  Waj^es,  /.  c,  real  wa^^es,  arc  not 
paid  for  the  purpose  of  enabling  production  to  be 
carried  on ;  and  the  laborer  never  regards  his  wages 
in  the  light  of  an  investment.  Wages  are  an  end; 
and  it  is  of  no  consequence  immediately  to  the 
wage-earner  that  they  arc  also  a  starting-point  in  a 
new  economic  cycle.  It  does  not  seem  desirable, 
therefore,  to  include  food  and  other  consumable 
commodities  within  the  content  of  the  term  capital. 
Capital  is  more  appropriately  confined  to  what  Pro- 
fessor Taussig  has  called  "inchoate"  wealth  or 
goods  on  the  way  towards  completion  for  the  satis- 
faction of  human  wants.  Wages,  and  all  the  other 
distributed  shares,  are  paid  out  of  the  income  rather 
than  out  of  the  capital  of  the  community;  although 
it  is  to  be  kept  in  mind  that  the  income  of  the  com- 
munity consists  in  that  portion  of  the  inchoate 
wealth  which  has  just  been  advanced  to  the  final 
stage.  The  wages  of  present  labor  will  not,  in  gen- 
eral, be  paid  out  of  the  product  of  present  labor. 
The  reward  of  labor  is  paid  out  of  the  product  of 
past  labor ;  and  the  labor  expended  to-day  may  serve 
to  remunerate  labor  a  year  or  five  years  hence.  The 
present  reward  of  present  labor  consists  of  consump- 
tion goods  which  have  been  preparing  for  use  during 
many  years. 

The  source  of  wages  is  the  stock  or  the  fund  of 
such  consumption  goods;  and  those  who  are  in 
possession  of  this  stock  are  the  real  dispensers  of 
wages.     The  laborer  is  certainly  not  the  owner ;  and 


The  Oivncrship  of  the  Waii^cs  Fund. 


57 


his  employer  seldom  is.  The  present  necessities  of 
the  laborer  compel  him  to  exchange  the  value  of 
his  share  in  a  certain  amount  of  capital  or  inchoate 
wealth  for  commodities  which  will  satisfy  his  imme- 
diate wants.  If  his  necessities  would  allow  him  to 
wait  until  the  wealth  he  has  helped  to  create  matures 
into,  or  is  carried  out  into,  commodities  in  a  condi- 
tion to  satisfy  human  wants,  he  mi^ht  be  able  to 
exchange  his  share  in  the  product  for  a  larger 
amount  of  commodities  that  will  satisfy  his  indi- 
vidual wants.  But  they  will  not  allow  him  to  wait. 
So  he  discounts  the  value  of  his  present  contribution 
to  the  income  of  five  or  ten  years  hence  and  receives 
in  return  actually  consumable  commodities  which  it 
may  be  five  or  ten  years  since  he  had  helped  to  ad- 
vance one  stage  towards  consumption. 

The  employer,  when  he  disposes  of  the  output  of 
his  factory,  is  in  practically  the  same  position :  he, 
too,  discounts  the  value  of  his  contribution  to  future 
income  and  he  does  so  under  the  pressure  of  the 
same  necessity  of  realizing  now  on  what  would  ac- 
crue to  him  in  the  future.  His  necessity  is  not  so 
immediate;  nor  does  he  always  feel  compelled  to 
make  a  bargain  for  the  output  with  someone,  before 
he  begins  to  produce.  The  laborer  not  only  sells 
his  share  of  the  ultimate  product  at  one  stage  earlier 
than  the  employer  sells  his,  but  he  is  not  in  a  posi- 
tion to  take  any  risks.  He  cannot  even  wait,  so 
great  and  so  immediate  are  his  necessities,  until  he 
has  made  his  contribution  before  he  disposes  of  its 
result.     The  employer,  as  a  rule,  can  wait  and  the 


'I ' 


w 


•4 


"3! 


1     ''1 


!       1 


Ml 


58 


77^^  Bargain  Theory  of  Wages. 


buyer  of  the  output  of  the  employer's  industry  takes 
less  risk  and  can  afford  to  give  better  terms.  The 
employer  from  this  point  of  view  is  simply  a  middle- 
man or,  if  you  like,  a  broker  or  private  banker  who 
discounts  values  which  are  too  uncertain  for  the 
regular  banker  to  touch.  He  takes  the  extra  risk 
of  the  laborer's  contribution  not  being  what  it  is  ex- 
pected to  be,  and  consequently  he  must  charge  a 
proportionately  higher  rate  of  discount.  Owing  to 
the  lengthened  process  of  production  the  laborer  in 
order  to  live  is  compelled  to  have  recourse  to  his 
broker;  and  when  the  laborer  is  not  economically 
subject  to  the  employer  he  is,  under  his  actual  con- 
ditions, the  gainer  by  the  transaction.  He  is  not 
in  a  position  to  take  risks,  and  therefore  gains  by 
obtaining  a  sum  down  instead  of  the  somewhat 
doubtful  value  which  he  might  obtain  after  waiting. 
Theoretically,  the  laborer,  who  is  not  paid  till  the 
end  of  the  season  or  till  the  product  is  marketed, 
ought  to  be  in  a  better  position  than  the  man  who 
is  compelled  to  make  his  employer  take  the  risks ; 
but  practically  he  is  not ;  for,  in  such  cases,  the  la- 
borer, being,  as  a  rule,  economically  subject  to  his 
employer,  is  compelled,  like  a  man  in  his  necessities 
having  recourse  to  a  usurer,  to  accept  whatever  terms 
the  employer  may  make. 

Whether  wages  are  paid  out  of  capital  or  not  is 
largely  a  question  of  the  definition  of  capital;  and, 
in  the  sense  in  which  we  have  taken  that  term, 
they  are  not  paid  out  of  capital.  On  the  contrary, 
if  a  paradoxical  use  of  language  may  be  permitted 


Capital  and  Wages. 


59 


for  a  moment,  the  laborer,  instead  of  being  sup- 
ported out  of  capital,  parts  with  capital  ("  inchoate 
wealth  "),  actual  or  to  be  created,  in  order  to  obtain 
an  income  of  commodities  in  a  form  ready  to  satisfy 
human  wants.  His  wages  are  paid  out  of  the  in- 
come of  society.  This  fact  is  concealed  from  us  by 
the  intervention  of  money  payments.  The  laborer 
receives  a  money  wage  directly  at  the  hand  of  his 
employer  and,  although  the  distinction  between 
money  wages  and  real  wages  is  always  made,  it  is 
not  always  adhered  to.  Because  the  laborer  re- 
ceives his  money  wages  from  his  immediate  em- 
ployer, it  is  generally  taken  for  granted  that  he  is 
paid  out  of  the  funds  of  his  employer;  and  if  we 
confine  our  attention  to  money  wages — a  matter 
of  little  importance  for  the  theory  of  wages — the 
fact  is  as  represented.  From  an  individual  point  of 
view,  the  payment  made  by  an  employer  to  his  em- 
ployees is  a  final  transaction,  but,  from  a  social 
point  of  view,  it  is  only  a  step  towards  the  final 
transaction.  In  the  payment  of  real  wages  the  em- 
ployer may  be  only  an  intermediary  or  agent :  the 
real  payer  of  wages  is  the  owner  of  the  stock  of 
consumption  goods. 

The  proposition  that  wages  are  paid  out  of  capi- 
tal is,  perhaps,  not  the  best  way  of  expressing  the 
dependence  of  the  laborer  on  his  employer;  and,  in 
consequence  of  the  inadequate  expression,  in  the 
Wages-Fund  Theory  this  dependence  is  somewhat 
exaggerated.  Mill,  who  has  given  us  the  standard 
exposition  of  the  theory,  defines  capital  by  reference 


■  1 1    y 


6o 


The  Bargain  Theory  of  Wages. 


I 
ilii 


i    I 


to  the  intentions  of  the  owner  of  capital ;  and  this 
definition,  combined  with  the  natural  habit  of  re- 
garding the  payment  of  money  wages  as  a  final 
transaction,  leads  to  the  characteristic  and  central 
doctrine  of  the  Wages-Fund  Theory,  that  the  money 
resources  which  the  employer  has  set  aside  for  the 
payment  of  wages  is  a  determinate  amount.  With 
the  version  of  the  theory  that  finds  in  it  only  a  state- 
ment of  the  wages  problem  we  need  not  trouble. 
We  can  find  our  own  statement  of  the  problem. 
The  Wages-Fund  Theory  stands  or  falls  according 
to  the  answer  to  the  question  whether  the  wages 
fund  is  predeterminate  and  fixed.  That  the  fund  is 
determinate  ex  post  facto  needs  no  long  demonstra- 
tion :  so  the  popular  and  unmodified  version  of  the 
theory  is  the  only  version  we  need  consider. 

According  to  this  version,  an  employer,  looking 
to  the  resources  at  his  command  and  to  the  nature 
of  the  productive  process  in  which  he  is  engaged, 
makes  up  his  mind  that  so  much  and  no  more  it  will 
be  profitable  for  him  to  spend  in  hiring  "labor — in 
much  the  same  way  as  a  householder,  looking  to 
the  size  of  his  income  and  the  domestic  necessities 
of  his  household,  decides  whether  to  engage  one 
or  two  or  three  domestic  servants.  Whatever  the 
hesitation  when  the  critical  question  is  propounded, 
there  can  be  no  doubt  that  it  was  generally  assumed 
that  not  only  no  more  but  no  less  than  this  prede- 
termined amount  would  or  could  be  spent  in  hiring 
labor.  This  definite  amount  was  earmarked  for  a 
definite  purpose;  and — an  important  feature  often 


,,,.? 


Is  the  Wages  Fund  Predetermined  f 


6i 


overlooked  by  the  critics  of  the  Theory — since  the 
regulation  of  industry  was  in  the  hands  of  the  capi- 
talist, no  change  could  occur  which  might  induce 
him  to  alter  his  intention.  Under  changed  conditions 
his  intentions  would  be  different ;  but,  in  the  normal 
course  of  industry,  his  intentions  determined,  and 
were  not  determined  by,  the  condition  of  industry. 
It  wa^  an  easy  matter  for  critics  who  accepted  the 
individual  limited  standpoint  of  the  Wages-Fund 
Theory  and  treated  only  money  wages,  to  demon- 
strate, as  soon  as  suspicion  of  the  validity  of  the 
Theory  had  been  aroused,  that  the  wages  fund  was 
neither  predetermined  nor  fixed,  that  employers  did 
not  pay  wages  from  a  royal  desire  to  carry  out  their 
intentions,  but  from  the  more  sordid  desire  of  se- 
curing for  themselves  the  surplus  of  the  product 
over  the  advances  made,  that  although  wages  might 
be  advanced  temporarily  by  the  employer,  the  ad- 
vances were  measured  by  the  anticipated  price  to  be 
realized  for  the  product,  and,  finally,  that  the  im- 
portant factor  to  be  considered  was  not  the  intention 
of  the  capitalist,  but  the  efficiency  of  the  laborer. 
On  all  of  these  points  the  critics  of  the  Theory  had 
an  easy  but  a  barren  victory.  They  had  an  easy 
victory,  because  they  could  show  that  the  capitalist 
never  acted  as  he  did  out  of  sheer  indifference,  or  to 
exhibit  his  strength,  but  from  an  economic  motive. 
They  had  a  barren  victory,  because  they  confined 
their  attention  mainly  to  money  wages — as  no  doubt 
they  felt  justified  in  doing,  in  criticising  a  theory 
which  confined  itself,  in  the  main,  to  money  wages. 


4ii;i' 


I*  I: 


I      I 


a    ■  1 


I  ii  r 


i      i    ' 


62 


7i^^  Bar  gam  Theory  of  Wages. 


The  criticism  was  perfect,  but  its  results  were  purely 
negative.  It  is  easy  to  show  that  the  money  which 
an  employer  is  prepared  to  spend  in  wages  is  neither 
fixed  nor  predetermined.  Theorists  neglected  alto- 
gether, as  Mr.  McLeod,  among  others,  has  pointed 
out,  the  influence  of  credit  in  swelling  the  resources 
of  the  employer;  and  when  this  influence  is  taken 
into  account  the  Wages  Fund  cannot  be  regarded 
as  fixed.  It  is  not  predetermined  because  industry 
is  not  stationary,  and  not  governed  exclusively  by 
the  intentions  of  the  employers.  Industry  is  con- 
stantly fluctuating  and  since  the  employer  never 
acts  qua  employer  without  an  adequate  economic 
motive  the  intentions  of  the  employer  will  change 
with  every  change  in  the  prospects  of  industry. 

But  all  this  valid  criticism  is  beside  the  question, 
which  is  one  of  real  wages.  The  source  from  which 
wages  must  be  paid  is  the  stock  of  consumable, 
commodities,  which  is  indeed  continuously  being 
exhausted  as  the  commodities  are  used  for  the 
satisfaction  of  human  wants,  but  also  continually 
replenished  from  the  volume  of  commodities  near- 
ing  completion.  This  stoc  :  is,  none  the  less,  for  any 
given  period  a  fairly  definite  amount.  Production 
is  spread  over  a  long  period,  and  no  demand,  how- 
ever urgent,  can  indefinitely  increase  the  amount  of 
all  commodities.  The  process  of  production  may, 
under  pressure  of  increased  demand  and  higher 
prices,  be  somewhat  shortened ;  and  since  many  of 
the  agents  and  much  of  the  material  of  production 
can  be  used  in  more  directions  than  one,  particular 


The  True  Wages  Fund  Fixed. 


63 


kinds  of  commodities  may  be  produced  in  vastly  in- 
creased amounts ;  yet  the  total  effect  on  the  real  in- 
come of  society,  /'.  r.,  on  the  stock  of  consumption 
goods,  is  not  very  great.  The  income  of  society, 
at  any  given  moment,  may  be  taken  as  an  approxi- 
mately fixed  amount ;  and,  interpreted  in  this  sense, 
the  W^ages  Fund  may  be  regarded  as  a  proportion 
of  a  fi  1  amount.  It  is  true  that  on  this  account 
the  position  of  the  wage-earners  is  no  worse  than 
the  position  of  the  receivers  of  rent  and  interest. 
These,  too,  are  paid  out  of  a  fixed  amount. 

The  original  Wages-Fund  Theory  asserted  that 
the  amount  of  wealth  which  goes  to  labor  is  deter- 
mined by  the  employer;  and  even  in  the  modified 
interpretation  of  the  Wages  Fund  the  statement 
remains  substantially  true,  if  we  extend  the  applica- 
tion of  the  term  capitalist  employer.  The  stock  of 
consumable  commodities  belongs  absolutely  to  its 
owners,  whoever  they  may  be.  All  claims  on  it  by 
those  engaged  in  its  production  have  been  brought 
out.  The  laborer  has  long  since  bartered  his  share  of 
the  final  and  completed  product  for  necessaries  of  life, 
it  may  be,  before  the  process  of  production  was  near- 
ing  completion.  The  employer  has  sold  out  his 
rights  that  he  might  meet  his  obligations  and  con- 
tinue his  business;  and  the  product  belongs  finally 
and  completely  to  its  owner.  The  class  of  owners 
need  not  necessarily  be,  as  it  is  under  modern  in- 
dustrial conditions,  limited  in  number;  but  whether 
the  class  be  large  or  small,  the  completed  product 
belongs  to  it  to  do  what  it  likes  with  its  own,  to 


1)11 


hi-" 


^\ 


I 


=iHii|i! 


%  tin 


1  ■' 


I'piii 


ill 

lit  i 


i 


ll, 


i  : 


m  --^ 


64 


T/ie  Bargain  T/l  ory  of  Wages. 


V. 


■J- 


IS 

i' 


it     i 


consume  it,  to  hoard  it,  or  to  waste  it.  If,  however, 
any  member  of  the  class  choose  to  postpone  the 
use  of  part  of  the  share  of  this  income  of  consumable 
commodities  which  has,  in  the  economic  course,  been 
assigned  to  him,  he  leaves  so  much  more  of  the 
stock  for  other  owners  or  non-owners  to  use.  The 
end  of  the  process  has  been  reached,  and  consuma- 
ble goods  must  be  consumed  or  wasted.  If  he  does 
not  consume  these  commodities  himself,  he  leaves 
them  for  some  other  to  consume;  and  if,  from  any 
cause,  he  prefers  to  postpone  his  consumption,  there 
are  others  ready  and  willing  to  step  into  his  place. 
No  man,  however,  if  we  omit  the  case  of  charity,  is 
willing  to  postpone  immediate  satisfaction,  except 
in  return  for  a  proportionally  greater  satisfaction  in 
the  future ;  and  the  only  way  in  which  a  man  can 
postpone  his  immediate  satisfaction,  and  secure  a 
greater  amount  of  satisfaction  in  the  future,  is  by 
exchanging  a  certain  amount  of  completed  wealth 
or  income  for  an  amount  of  inchoate  wealth  or  capi- 
tal which,  when  carried  to  completion,  will  repay 
him  for  the  sacrifice  involved  in  the  postponement 
of  present  satisfaction.  If  he  is  so  minded  he  will 
always,  owing  to  the  conditions  of  production,  find 
many  willing  to  exchange  inchoate,  or  less  than  in- 
choate, wealth  for  present  income  of  consumption 
goods.  Now,  although  in  the  aggregate  the  savings 
of  the  working  classes  seem  enormous,  these,  yet, 
form  a  very  small  fraction  of  the  total  savings  of 
society,  and,  under  the  present  cond  :)ns  of  unequal 
distribution  of  wealth  in  society,        must  look  for 


■Y'!. 


The  Amount  of  the  Wages  Fund. 


65 


saving  only  from  those  whose  object,  in  common 
parlance,  is  to  make  money.  The  members  of  the 
employing  class  alone,  taking  this  term  in  a  wide 
sense  to  include  bankers  and  investors,  are  able  and 
willing,  to  any  appreciable  extent,  to  postpone  en- 
joyment and  buy  capital  or  inchoate  wealth  with  in- 
come. The  laborers,  on  the  other  hand,  as  we  saw, 
are  willing,  indeed,  are  forced  by  the  necessities  of 
life,  to  exchange  capital  for  income,  because  other- 
wise they  would  be  unable  to  command  the  com- 
modities which  will  satisfy  their  present  wants.  The 
laborer  has  long  ago  parted  with  his  share  of  present 
income  under  pressure  of  necessity,  and  he  must 
now  purchase  a  share  in  the  present  income  by  part- 
ing with  his  claims  on  a  yet  distant  product.  Con- 
sequently the  price  which  he  is  likely  to  receive  for 
his  claims  is  the  amount  of  their  consumption  of  the 
actually  finished  commodities  which  the  owners  are 
willing  to  postpone.  The  measure  of  the  Wages 
Fund  is  thus  set  by  the  degree  of  the  willingness  of 
the  owners  of  consumable  commodities  to  postpone 
their  consumption.  This  fact  is  not  clearly  enunci- 
ated in  the  proposition  of  the  Theory  that  the  inten- 
tion of  the  capitalist  determines  the  Wages  Fund ; 
because,  owing  to  the  present  unequal  distribution 
of  wealth  and  those  facts  of  life  set  forth  in  the  law 
of  diminishing  utility,  the  primary  owners  of  the  in- 
come of  society  could  not  possibly  consume  the 
whole  of  it.  The  greater  part  of  this  income  con- 
sists of  commodities  which  can  satisfy  only  the  ele- 
mentary  physical   wants;    and,    since   the   present 


)l^! 


Ill 


! 


M 
;  1I I 


i! 


\ 


66 


I 


i   *i 


'li 


!    ,' 


T/ic  Bargain  Theory  of  Wages. 


owners  arc  few  in  number,  they  must  postpone  part 
of  their  consumption  and  would  do  so  whether  they 
received  a  "  reward  for  their  abstinence  "  or  not. 
The  socialists  have  poked  rather  laborious  fun  at 
the  author  of  this  famous  phrase  and  have  justly 
pointed  out  that,  in  the  present  distribution  of 
wealth,  the  postponement  of  present  consumption 
is  a  necessity,  not  a  virtue.  The  capitalist,  or,  as 
we  had  better  call  him,  the  final  owner,  is  almost  as 
much  bound  to  buy  future  income  as  the  laborer  is 
to  buy  present  income.  Still,  since  the  laborer  has 
no  primary  share  in  this  present  income,  the  amount 
of  it  which  laborers  can  receive  as  w^ages  is  strictly 
determined  by  the  amount  of  present  consumption 
that  the  owners,  under  whatever  conditions,  are  will- 
ing to  postpone. 

We  are  now  in  a  position  to  discuss  the  bearing 
of  consumption  on  the  wages  question.  It  is  often 
asserted,  in  defiance  of  Mill  and  the  classical  econo- 
mists, that  a  demand  for  commodities  is  a  demand 
for  labor,  and  a  practical  corollary  is  sometimes 
added  that  the  payment  of  high  wages  to  the  work- 
ing classes  results  in  the  general  prosperity  of  in- 
dustry. In  the  main  the  answer  of  the  classical 
economists  was  correct ;  although  they  did  not,  per- 
haps, develop  all  that  was  implied  in  their  answer, 
that  a  demand  for  commodities  could  only  change 
the  direction  of  industry,  because  demand  and  sup- 
ply are  but  the  two  sides  of  the  one  shield.  A 
change  of  the  direction  of  industry,  however,  has 
more  than  the  merely  formal  consequences  which 


"A  Demand  for  Commodities'* 


67 


alone  they  seemed  to  recognize.  An  increased  de- 
mand for  the  commodities  consumed  by  the  working 
classes,  in  consequence  of  higher  wages  being  paid, 
will  change  the  direction  of  industry  to  more  profit- 
able channels.  A  certain  portion  of  the  increment 
may  be  spent  on  working-class  luxuries  of  food  and 
drink,  but  the  greater  part  will  be  wisely  expended, 
especially  if  the  rise  in  wages  is  of  some  duration. 
The  result  will  be,  since  the  working  classes  form 
the  great  majority  of  the  nation,  and  their  wages 
allow  them  to  satisfy  only  the  elementary  and  uni- 
versal wants,  that  production,  owing  to  the  increased 
demand,  will  be  conducted  on  a  more  economical 
basis.  The  limit  to  the  division  of  labor  is  the  area 
and  extent  of  the  market ;  and  where  fashion  and 
caprice  rule,  division  of  labor  cannot  be  carried  very 
far.  A  working-class  demand  is  not  subject  to 
fashion  and  caprice,  individual  preferences  being 
offset,  owing  to  the  area  of  the  market ;  and,  conse- 
quently, new  and  more  economical  processes  may  be 
commenced  in  the  assurance  of  a  steady  market. 
Therefore,  when  a  change  in  the  demand  arises  from 
higher  wages  paid  to  the  working  classes,  there  may 
be  a  great  gain  to  society  as  a  whole.  Except  in 
this  case,  however,  a  demand  for  commodities  is  not 
a  demand  for  labor.  A  demand  for  commodities, 
taking  commodities  in  the  sense  of  goods  ready  for 
consumption,  implies  a  large  consumption  of  real 
income  by  its  immediate  owners;  and,  as  we  have 
seen,  the  amount  which  is  paid  in  wages  depends  on 
the  extent  to  which  the  final  owners  of  the  real  in- 


!i 


: !     < ' 


:r;  j! 


\     ■! 


•m: 


■ « I 


j  '  'I 


fl 


ii 


f 


I  ■;■ 


1  'I 

i  111 


68 


The  Bargain  Theory  of  Wages, 


come  of  society  arc  prepared  to  postpone  consump- 
tion. If  the  increased  demand  of  a  section  of  the 
owners  of  this  real  income  induce  another  section  of 
the  owners  to  postpone  more  of  their  own  consump- 
tion than  they  would  otherwise  have  postponed,  the 
net  result  may  be  an  increased  demand  for  labor; 
but  then  the  increased  demand  for  labor  arises  from 
the  greater  willingness  to  postpone  consumption. 
More  of  the  real  income  of  society,  not  less,  is 
offered  in  exchange  for  the  labor  which  will  create 
those  forms  of  consumption  goods  which  are  most 
in  demand.  But  if  the  increased  demand  for  com- 
modities be  universal,  if,  that  is,  there  is  less  willing- 
ness on  the  whole  on  the  part  of  the  owners  of  real 
income  to  postpone  consumption,  the  result  will  be 
not  an  increase  in  the  demand  for  labor  but  a  diminu- 
tion of  the  demand.  Since  the  laborers  who  own 
practically  none  of  this  real  income  must  be  sup- 
ported out  of  this  income  they  will  have  to  offer 
their  share  in  the  future  income  of  society  at  a 
greater  discount,  and  the  result  will  be  a  lower  rate 
of  wages.  That  this  result  never  occurs  is  due  to 
two  facts:  (i)  that  owing  to  the  law  of  diminishing 
utility  the  owners  of  real  income — made  up,  as  it  is, 
largely  of  goods  capable  of  satisfying  only  the  most 
elementary  wants — cannot  possibly  consume  the 
whole  of  it,  and  (2)  that,  in  one  large  section  of  the 
owners,  the  instinct  for  postponement  (with  a  view 
to  making  money)  is  much  stronger  than  the  instinct 
which  would  lead  them  to  consume  the  whole  of 
their  share  of  this  income.     The  owners  of  the  real 


J 


Luxurious  Expenditure  and  Wages. 


69 


income  are  rouglily  divisible  into  two  classes,  the 
spenders  and  the  savers;  and  an  increased  demand 
from  the  spenders  (if  that  be  possible  for  them  with- 
out selling  part  of  their  right  to  a  share  in  the  future 
income  of  society)  creates  often  so  much  the  more 
inducement  to  the  savers  to  postpone  their  con- 
sumption. We  can  thus  see  clearly  how  far  the 
luxurious  expenditure  of  the  rich  does  and  does  not 
benefit  the  working  classes.  In  so  far  as  it  induces 
the  other  section  of  the  owners  of  income  to  post- 
pone a  larger  amount  of  their  consumption  it  will 
benefit  the  working  classes :  in  so  far  as  it  means  a 
net  diminution  of  the  amount  of  postponement  and 
a  net  increase  of  the  immediate  consumption  of  in- 
come by  the  immediate  owners  such  expenditure 
materially  injures  the  working  classes.  On  the 
other  hand,  an  increase  of  wages  which  leads  to  a 
steadier  and  wider  demand  for  that  class  of  goods 
in  the  production  of  which  the  law  of  increasing 
returns  is  operative  may  induce  the  saving  section 
to  save  more  and  thus  increase  the  amount  they 
are  willing  to  expend  in  the  purchase  of  the  in- 
choate wealth  which  belongs  or  will  belong  to  the 
laborer. 

The  third  proposition  is  to  the  effect  that  this 
Wages  Fund  is  distributed  amongst  the  laborers 
solely  by  means  of  competition  and  the  rate  of  wages 
depends  on  the  proportion  between  capital  and  popu- 
lation— both  these  terms  being  theoretically  under- 
stood as  elliptical  expressions.  We  need  not  attempt 
to  show  that  however  completely  wages  are  deter- 


:ii' 


iil 


j 


'lill 


Ij  1 


I 


70 


The  Bargain  Theory  of  Wages. 


R  !    ;, 


mined  in  the  present  day  by  competition,  historically 
law  and  customs  have  been  more  important  in  the 
determination  of  wages.  Mad  the  attention  of 
Ricardo  and  of  Mill  been  directed  to  the  history  of 
labor  they  would  probably  have  been  ready  enough 
to  admit  the  existence  of  other  determining  forces 
than  competition ;  but  they  would  probably  have 
continued  to  treat  the  wages  question  as  they  did. 
They  would  have  contended  that  we  can  be  practi- 
cally interested  only  in  the  (to  them)  undoubted 
tendency  of  economic  progress  to  bring  about  that 
condition  of  competition  their  theory  postulated. 
The  stage  of  law  and  custom  was,  they  considered, 
an  imperfect  development :  the  stage  of  competi- 
tion, though,  perhaps,  not  realized  completely  any- 
where, was  the  end  towards  which  things  were 
moving.  On  the  other  hand,  we  need  not  attempt 
to  discuss  whether  competition  is  realized  in  actual 
circumstances,  how  far  it  ought  to  be  realized,  or 
how  far  it  is  merely  a  transitional  stage  between 
custom  and  combination. 

What  we  do  require  to  discuss  is  the  ultimate  as- 
sumption that  lies  behind  this  third  proposition  that 
labor  is  a  commodity  subject,  when  it  is  bought  and 
sold,  to  all  the  laws  which  govern  the  sale  of  other 
commodities.  The  Wages-Fund  Theory  not  only 
treats  labor  as  a  commodity,  but,  if  we  may  take 
Mill's  exposition  as  our  standard,  as  the  commodity. 
The  value  of  labor,  according  to  Mill,  is  always  a 
market  value,  and  the  fluctuations  of  this  market 
value  are  not  checked,  as  the  fluctuations  in  the 


Labor  as  a  Commodity, 


7« 


value  of  most  commodities  arc,  by  the  cost  of  pro- 
duction. Wlicn  a  commodity  is  of  such  a  nature  as 
to  "  admit  of  indefinite  multiplication,"  *  the  fluctu- 
ations of  its  market  value  from  its  cost  of  production 
are  within  very  narrow  limits;  but  so  far  as  the 
"  exceptional  case  "  of  "  commodities  not  suscepti- 
ble of  being  multiplied  at  pleasure  "  the  fluctuations 
of  the  market  value  are  in  no  wise  restricted.  "  The 
principle  of  the  exception  stretches  wider  and  em- 
braces more  cases  than  might  at  first  be  supposed." 
"  Finally,"  he  continues,  "  there  are  commodities  of 
which,  though  capable  of  being  increased  or  dimin- 
ished to  a  great,  and  even  to  an  unlimited,  extent,  the 
value  never  depends  on  anything  but  demand  and 
supply.  This  is  the  case  in  particular  with  labor."  f 
Labor,  then,  is  a  commodity  subject,  in  an  ex- 
ceptional degree,  to  the  law  of  demand  and  sup- 
ply. Like  the  commodities  exchanged  in  Interna- 
tional Trade,  where  industrial  competition  does  not 
enter,  it  is  one  of  the  simplest  cases  of  value.     The 

*  Principles,  Book  III.,  c.  2,  p.  272, 

f  Professor  Marshall  points  out  that  Mill,  under  the  influence  of 
his  social  sympathies,  separated  the  theory  of  distribution  from  the 
theory  of  exchange  and,  owing  to  the  remarkably  short  time  in  which 
the  Principles  were  written,  failed  to  co-ordinate  the  different  parts 
of  his  general  theory.  Certainly,  in  the  second  book,  wages  are  said 
to  be  determined  by  the  proportion  between  capital  and  population — 
the  demand  and  the  supply  of  the  Wages-Fund  Theory  ;  but,  in  the 
third  book,  he  substitutes  equation  for  proportion  and  shows  that 
demand  is  not  independent  of  but  dependent  on  supply,  being  simply 
the  quantity  demanded  at  a  given  price.  The  consistency  or  the 
inconsistency,  however,  of  Mill's  theories  and  expressions  is  not  our 
object, 


i 


1( 


¥\ 


iii^ 


!^ 


I 


* 


i  ■  1 


72 


The  Bargain  Theory  of  Wages. 


\ 


^ii^ 


supply  of  labor  is  not  determined  by  competition, 
but  by  an  extraneous  force,  the  principle  of  popula- 
tion ;  and  the  supply  is  on  the  market  and  must  be 
disposed  of  regardless  of  sacrifice.  The  demand 
being  determined  by  the  intentions  of  the  employers 
may  also  be  regarded  as  fixed ;  and  the  price  of 
labor,  therefore,  depends,  simply  and  unreservedly, 
on  the  proportion  between  supply  and  demand. 
The  value  of  labor,  therefore,  differs  from  the  values 
of  other  commodities  in  not  being  subject  to  steady- 
ing influence  of  the  cost  of  production.* 

The  value  of  labor  is  certainly  not  determined  as 
other  values  are;  but  it  is  not  therefore  determined 
more  simply.  On  the  contrary,  it  is  a  more  com- 
plicated case  of  value.  Factors  which  have  been 
eliminated  from  the  determination  of  the  value  of 
other  commodities  are  still  present  in  the  determina- 
tion of  the  value  of  labor.  Commodities,  probably 
all  commodities  but  labor,  are  placed  on  the  market, 
where  the  value  is  determined  mainly  by  demand. 
The  seller  may  come  to  the  market  with  a  definite 
idea  of  what  he  regards  to  be  the  proper  supply 
price  of  the  commodity  he  offers  for  sale,  and  may 

*  In  a  sense,  it  was  necessary  for  the  cost  of  production  theory  of 
value  that  labor,  at  least,  as  one  of  the  ultimate  elements  in  the  cost, 
should  have  a  value  directly  determined,  so  that  it  might  prove 
acceptable  as  one  cf  the  determinants  of  the  permanent  value  of  the 
comnif  lities.  The  cost  of  production  can  be  regarded  as  ^  final 
analysis  of  value  only  if  the  respective  elements  of  the  cost  are  fixed 
and  independent  values.  The  method  of  making  labor  a  fixed  and 
independent  value  by  regarding  it  as  determined  by  the  equation  of 
supply  and  demand  does  not  gommend  itself. 


nv 


I  ill 


Has  Labor  a  Supply  Price  ? 


n 


\^\\ 


i  w 

•I 


withhold  a  portion  of  the  supply  because  the  price 
he  can  obtain  is  lower  than  his  supply  price ;  but  it 
is  the  demand  which  determines  whether  he  shall 
withhold  or  not.  Generally  speaking,  and  for  most 
commodities,  the  seller  is  forced  to  accept  the  price 
fixed  by  demand.  The  commodity  may  be  perish- 
able and,  in  that  case,  it  must  be  sold  regardless  of 
cost.  In  every  case  competition  has  cut  the  margin 
of  profit  so  close  that  it  is  a  question  whether  the 
seller  can  afford  to  stand  out  of  his  money  by  re- 
fusing to  sell.  The  Theorists,  strong  in  the  sense 
of  their  first  proposition,  insist  that  the  laborer  is 
also  in  the  condition  of  having  a  commodity  to  sell 
which  his  necessities  will  not  allow  him  to  withhold 
from  the  market.  He  must  sell;  for  his  goods  are 
peculiarly  perishable.  Hence  it  might  be  argued 
that  the  supply  price  of  labor  is,  so  far  as  its  effect 
on  the  market  price  goes,  practically  non-existent ; 
and  the  market  price  will  be  determined  from  the 
side  of  supply  alone  at  such  a  figure  as  will  carry  off 
the  whole  of  the  supply.  But  the  cabc  is  not  so 
simple  as  it  is  thus  made  to  appear.  The  supply 
price  of  the  commodity  has  little  effect  on  the 
market  price ;  simply  because  it  is  only  a  question 
of  relative  profit  whether  the  commodity  is  sold  or 
not.  The  seller  may  desire  a  higher  price,  but  his 
necessity  of  meeting  his  obligations  may  compel 
him  to  place  his  whole  supply  on  the  market.  The 
only  reason  that  he  can  have  for  witnholding  part, 
or  the  whole,  of  his  supply,  is  the  question  of  rela- 
tive  profitableness.      The   higher  price   which   he 


H 


i}i!;i:ii 


^i-.ll 


If 


'ii 


il 


>■;• 


I   ; 

1 

1 ; 


>  I 


74 


The  Bargain  Theory  of  Wages. 


hopes  to  obtain  may  more  than  make  up  for  the  im- 
mediate loss  incurred  by  refusing  to  sell.  There  is, 
as  a  rule,  no  other  reason  why  he  should  withhold. 
He  has  no  personal  attachments  to  the  commodity 
to  induce  him  to  withhold  it.  To  withhold  it  is  to 
incur  extra  expense  and  extra  risk,  an  allowance  for 
which  must  be  deducted  from  the  higher  price  to 
be  afterwards  realized  before  the  net  profit  appears. 
Accordingly,  since  the  margin  of  profit  is  generally 
cut  very  close  by  competition,  the  supply  will  be 
seldom  withheld  and  the  demand  price  will  be  the 
market  price.  The  laborer,  however,  is  in  an  entirely 
different  position.  His  labor,  it  is  true,  is  essen- 
tially a  perishable  commodity  which  must  be  sold  at 
once,  if  it  is  to  be  sold  at  all ;  and  the  laborer  must 
sell  in  order  to  live.  On  the  other  hand,  he  is  in- 
tensely interested  in  what  he  does  sell.  Labor  in- 
volves disutility ;  and,  moreover,  when  the  laborer 
sells  his  labor  he  must,  so  to  speak,  delivei  it  him- 
self. The  laborer  incurs  no  expense  and  no  risk  in 
withholding  his  labor;  and,  if  his  powers  are  not 
always  recruited  in  idleness,  by  withholding  he  es- 
capes the  sacrifice  involved  in  labor.  If  it  were  not 
that  he  must  sell  in  order  to  live,  his  position  in  the 
labor  market  could  be  exceptionally  strong;  and 
even  when  he  is  thus  compelled  to  sell,  and  sell  at 
once,  his  personal  feelings,  as  well  as  his  home  and 
place  attachment,  enable  him  to  demand  better 
terms.  Adam  Smith's  famous  statement  of  the  im- 
mobility of  labor  docs  not  justify  the  conclusion 
visually  drawn  from  it. 


The  Disabilities  of  Labor. 


75 


"  Such  a  difference  in  prices,  which,  it  seems,  is  not 
always  sufficient  to  transport  a  man  from  one  })arish  to 
another,  would  necessarily  occasion  so  great  a  transpor- 
tation of  the  most  bulky  commodities  not  only  from  one 
parish  to  another,  but  from  one  end  of  tiie  kingdom, 
almost  from  one  end  of  the  world  to  the  other,  as  would 
soon  reduce  them  more  nearly  to  a  level.  After  all  that 
has  been  said  of  the  levity  and  inconstancy  of  luiman 
nature,  it  appears  evidently  from  experience  that  man  is 
of  all  sorts  of  luggage  the  most  difficult  to  be  trans- 
ported."* 

The  usual  inference  is  that  the  wages  of  the  laborer 
must  suffer  on  account  of  his  local  attachments. 
In  individual  cases  this  may  be  true;  but,  on  the 
whole,  the  general  and  ultimate  result  is  not  so  seri- 
ous as  it  might  be.  These  home  and  place  attach- 
ments form  a  large  part  of  ou"  personality  and  on 
them  is  based  to  a  great  extent  our  self-respect.  It 
is  not  an  extravagant  claim  to  make  that  the  self- 
respect,  even  of  a  laborer  who  must  work,  has  a 
strong  influence  on  wages.  If  the  worst  come  to 
the  worst  the  self-respect  of  the  laborer  would  not 
stand ;  but  the  worst  seldom  comes  to  the  worst. 
The  competition  between  master  and  man  is  rarely 
a  combat  h  outrance.  The  employer  may  know 
that,  if  he  tried,  he  could  coerce  the  laborer  into 
submission ;  but  the  known  ob'^tinacy  or  firmness  of 
the  laborer  may  prevent  him  from  trying.  The 
larger  the  number  of  laborers  whose  self-respect  is 
threatened  the  c^reatcr  the  influence  of  this  factor  in 

♦  Wealth  of  Nations,  p.  31. 


H    \\.\ 


I'i 


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76 


The  Bargain  Theory  of  Wages. 


M 


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determining  the  wages  paid.  The  conflict  between 
capital  and  labor  is  not  a  personal  conflict,  but  a 
competition  to  determine  the  share  of  each  in  the 
results  of  their  common  labor.  The  laborer  obtains 
a  larger  wage  than  he  might  be  forced  to  accept  be- 
cause the  motive  for  paying  wages  is  not  the  dis- 
bursement of  a  fund,  but  the  making  of  a  profit. 
To  compel  an  unwilling  laborer  to  work  for  less  than 
he  thinks  he  is  worth  means  delay  to  begin  with 
(and  time  is  money),  and,  in  the  second  place,  it 
generally  means,  also,  less  effective  work.  Econo- 
mists all  admit  that  moral  character  enters  into 
efficiency ;  and  an  unwilling  laborer,  working  under 
a  supposed  grievance  and  an  outraged  sense  of  jus- 
tice, is  not  likely  to  be  highly  efficient.  Wages  are 
determined  from  the  employer's  point  of  view  by 
the  surplus  he  hopes  to  realize  after  he  has  repaid 
to  his  capital  account  his  expenditure  on  wages ;  and 
the  surplus  may  be  as  large  when  the  efficiency  is 
great,  though  the  wages  are  high,  as  it  is  when,  out 
of  a  small  product,  low  wages  are  paid. 

Labor,  then,  if  it  be  a  commodity,  is  a  commodity 
of  a  peculiar  kind.  It  is  a  commodity  which  has  a 
definite  supply  price — a  price  which,  moreover,  it 
may  be  just  as  profitable  for  the  buyer  to  pay.  The 
buyer  of  labor,  omitting  the  case  of  service,  buys  to 
produce,  not  to  consume ;  and  he  acquires  no  passive 
instrument  of  an  unvarying  efficiency.  He  acquires 
an  instrument  of  production  whose  efficiency  is  de- 
termined, in  part,  by  moral  considerations,  an  in- 


i 


WfmmSgPHSM^,^  .--KMS!^ 


Labor  as  a  Commodity. 


77 


strument  which  may  be  wasteful,  or  provident  and 
careful,  in  the  use  of  other  instruments  and  agencies 
of  production.  The  efficiency  of  passive  instruments 
depends  on  the  laborer.  Consequently,  when  labor  is 
bought,  the  purchaser  takes  into  account  the  differ- 
ence between  labor  and  other  commodities,  and  is 
therefore  the  more  willing  to  make  moderate  con- 
cessions if  by  so  doing  he  can  remove  all  unwilling- 
ness and  sense  of  unfairness  from  the  mind  of  the 
laborer.  This  is  the  reason  why  a  body  of  laborers, 
who  must  work  but  yet  are  unwilling  to  accept  less 
than  their  self-respect  tells  them  they  are  worth,  are 
not  forced  by  their  necessities  to  accept  starvation 
wages.  The  employer  knows  what  he  has  to  pur- 
chase, and  acts  accordingly. 

The  value  of  labor,  therefore,  is  not  determined  as 
the  value  of  all  other  commodities  is ;  because  labor 
is  not  a  commodity  in  every  respect  similar  to  other 
commodities.  Labor  is  a  commodity  which  has  re- 
tained a  definite  supply  price  to  a  much  greater  ex- 
tent than  any  other  commodity  has ;  and  this  supply 
price,  under  the  motives  and  conditions  of  the  hiring 
of  labor,  cannot  be  without  effect  on  the  resultant 
market  price,  because,  in  the  case  considered  by  the 
Wages-Fund  Theory  of  hired  labor,  the  demand 
price  of  labor  is  fixed  not  with  immediate  reference 
to  the  utility  of  the  purchase,  but  to  the  utilities,  or 
the  command  of  utilities,  which  labor  can  produce 
in  excess  of  those  handed  over  to  the  laborer  as  his 
reward. 


I  I 


ij.i 


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78 


T/ic  Bargain  Theory  of  Wages. 


The  Wages-Fund   Theory,    accepted   uncritically 
for  the  hundred  years  of  its  growth  and  maturity 
was  in  the  fullness  of  time  suddenly  criticised  and 
rejected;  and  in  its  stead  reigned  the  productivity 
of  labor  theory. 


t  ' 

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I  . 


CHAPTER   III. 


THE   PRODUCTIVITY   OF   LABOR   THEORY. 

THIS  theory  was  developed  as  a  criticism  of  the 
dominant  Wages-Fund  Theory;  and,  in  the 
survival  of  references  and  criticisms  and  in  the  gen- 
eral point  of  view  which  has  been  adopted  on  account 
of  a  too  exclusive  attention  to  the  theory  criticised, 
continues  to  bear  evident  marks  of  its  polemical 
origin.  The  Wages-Fund  Theory,  was,  in  its  origin, 
based  on  Ricardo's  practical  limitation  of  capital  to 
the  food,  etc.,  advanced  to  the  laborers;  but,  as  the 
theory  became  more  systematic,  and  was  rounded 
off  for  the  sake  of  illustration,  capital  came,  for  the 
purposes  of  the  theory  of  wages,  to  be  spoken  of  as 
if  it  were  synonymous  with  money;  and  the  Wages- 
Fund  Theory  became  merely  a  theory  of  money 
wages.  The  distinction  between  real  wages  and 
money  wages  was  duly  made;  but  it  had  no  further 
place  in  the  discussion.  One  of  the  earliest  objec- 
tions raised — and  the  fact  that  it  was  not  raised 
earlier  is  an  evidence  of  the  firm  hold  the  Wages- 
Fund  Theory  had  on  the  minds  of  the  men  of  the 

79 


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The  Bargain  TJieory  of  Wages, 


generation  between  Ricardo  and  Mill — was  to  the 
effect  that  the  wages  fund  need  not  be  absokitely 
determinate  and  predetermined ;  for  the  banks,  by 
means  of  cash  credits,  enabled  an  employer,  when 
necessary,  to  increase  the  wages  fund,  notwithstand- 
ing his  former  estimate  and  "intention."  The 
reference  in  this  criticism  is  obviously  to  money 
wages;  and  subsequent  criticism  followed  the  same 
lines.  The  distinction  between  money  wages  and 
real  wages  was  still  drawn ;  but,  in  the  statement  of 
the  general  problem,  in  the  solution,  and  in  the 
methods  by  which  the  solution  is  obtained,  the  sup- 
porters of  the  new  theory,  whether  as  critics  of  the 
old  or  expositors  of  the  new,  practically  kept  money 
wages  alone  before  their  minds.  For  this  is  the 
meaning  of  the  iteration  of  illustrations  showing 
that  labor  is  often  advanced  to  the  capitalist  and 
that  the  product  in  numberless  instances  is  sold  be- 
fore the  wages  of  the  laborers  are  paid ;  and  the 
meaning  also  of  the  total  neglect  of  the  fact  that  if 
labor  is  paid  out  of  the  product  it  cannot  be  paid 
out  of  the  product  of  its  present  employment,  but 
out  of  the  product  of  past  employment.  As  far  as 
money  wages  is  concerned,  everything  may  be 
yielded  to  their  contentions — except  the  immediate 
dependence  of  the  laborer  on  his  employer,  through 
whom  he  receives  his  derivative  share  of  real  income. 
The  wages  fund,  in  the  money  sense,  is  not  pre- 
determined, is  not  limited ;  and  the  share  which 
labor  receives  is  not  a  question  of  the  rules  of  arith- 
metic.    We  may  as  readily  admit  to  the  critics  that 


iiimiiL»itp.>P«iL 


i 


IVages-Fimd  Theory  and  Mottcy  Wages.        8 1 


the  motive  for  paying  wages  is  the  surpkis  of  the 
product  which  will  remain  in  the  hands  of  the  em- 
ployer when  the  cycle  is  completed.  The  employer, 
as  we  saw,  is  generally  not  the  ultimate  banker,  but 
the  broker;  and,  if  he  does  not  anticipate  good 
terms  when  he  rediscounts,  neither  can  he  offer  good 
terms.  The  difference  between  the  rate  he  pays 
and  the  rate  he  charges  is  the  sole  motive  for  making 
advances  at  all.  This,  expressed  in  other  terms 
than  they  employ,  is  true  and  valid  as  a  criticism  of 
the  Wages-Fund  Theory,  but  it  does  not  advance  us 
beyond  the  theory.  It  was  well,  perhaps,  to  show 
that  even  on  its  own  ground  the  Wages-Fund 
Theory  may  be  overthrown ;  but  this  is,  after  all, 
only  a  negative  contribution  to  knowledge.  The 
real  problem  deals  with  real  wages ;  and  these  are, 
n..>  we  saw  in  the  last  chapter,  evidently  drawn  from 
a  practically  fixed  and  predetermined  fund ;  and,  as  a 
solution  of  the  real  problem,  the  productivity  theory 
is  simply  an  ignoratio  clcnchi. 

But  we  must  follow  the  example  of  the  founders 
of  this  theory  in  their  criticism  of  the  Wages-Fund 
Theory,  and  discuss  the  new  theory  on  its  own 
grounds  before  we  can  proceed  to  the  statement  of 
a  theory  which  better  explains  the  facts  of  modern 
industrial  life,  and  offers  a  more  hopeful  solution 
and  answer  to  the  wages  question. 

In  the  first  chapter  we  found,  in  the  perplexities 
which  surround  the  relation  between  wages  and  the 
standard  of  living,  the  difficulty  of  determining  by 
the  method  of  concomitant  variations  the  direction 


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of  the  causal  relation;  and  the  same  (Hfficulty  meets 
us  a<;ain  on  the  threshold  of  the  third  theory.  There 
the  difficulty  was  to  decide  between  X\\q.  pro  and  the 
con,  between  the  theory  and  its  critics :  here  the  dif^- 
culty  is  to  decide  between  two  rival  theories  each  en- 
titled apparently  to  call  itself  the  productivity  theory. 
Hi^h  wa^es  and  large  output  are  causally  connected. 
This  much  has  been  established  beyond  possibility 
of  doubt.  Statisticians  have  proved  the  connection 
by  facts  and  figures  drawn  from  all  countries  and  all 
industries  and  under  the  most  diverse  conditions. 
Historical  and  contemporaneous  records  have  been 
drawn  upon  so  liberally  that  sometimes  we  can 
hardly  see  the  wood  for  the  trees.  But  which  is 
cause  and  which  effect  has  not  been  so  clearly  proved. 
Whether  is  high  wages  the  cause  of  the  large  output 
or  the  large  output  the  cause  of  high  wages  ?  This 
is  not  clear;  for  we  have  two  rival  theories  each 
appealing  to  the  arbitration  of  the  same  facts,  and 
some  writers  varying  from  the  one  theory  to  the 
other,  without  recognizing  the  essential  difference 
between  them.  The  one  theory  maintains  that  high 
wages  precede  and  give  rise  to  an  increased  product 
which,  in  time,  provides  the  justification  of  the 
higher  wages.  The  other  is  the  converse  of  the 
first,  and  asserts  that  high  wages  are  paid  where  the 
efficiency  of  labor  is  great,  and  are  paid  only  because 
the  efficiency  is  great.  Since  the  rival  theories  ap- 
peal to  the  same  facts,  the  divergence  between  them 
appears  more  clearly  in  the  practical  conclusions 
than  in  the  theoretical  statements.     The  exponents 


Two  Versions  of  the  Productivity  Tiicory.       83 


of  the  first  arc,  generally,  to  be  found  among  those 
who  desire  State  or  municipal  interference  on  behalf 
of  labor;  and  their  appeal  is  to  history  to  justify 
what  they  admit  to  be  a  leap  in  the  dark.  They 
are  distinguished,  at  present,  by  their  advocacy  of  a 
shorter  working  day  or  of  profit-sharing  and  other 
schemes  to  improve  the  relations  between  employers 
and  employed.  The  supporters  of  the  second  ver- 
sion are  the  most  ardent  promoters  of  industrial  and 
technical  education  and  other  direct  and  indirect 
methods  of  increasing  efficiency ;  because  they  as- 
sume that,  since  wages  are  paid  out  of  the  product, 
competition  will  transfer  to  the  working  classes  the 
whole  of  the  increase  of  the  product  due  to  increased 
efficiency. 

The  first,  which  is  probably  the  version  of  the 
theory  most  generally  adopted,  on  a  first  analysis, 
seems  to  be  little  more  than  a  less  simple  and  naive 
form  of  the  subsistence  theory.  The  proposition  on 
which  it  rests  is  that  higher  wages  can  be  paid  be- 
cause the  greater  efficiency  which  results  from  the 
higher  wages  will  serve  to  recoup  the  employer.  It 
is  admitted,  in  all  but  terms,  that  the  advance  of 
wages  is  a  leap  in  the  dark,  but  a  leap  experience 
shows  to  be  more  than  mere  rashness.  The  higher 
wages,  the  argument  runs,  will  enable  the  laborer  to 
eat  better  food  and  wear  better  clothing  and  live 
generally  under  more  favorable  conditions.  So  sure 
are  the  supporters  of  this  version  of  the  theory  that 
there  is  a  very  close  and  definite  relation  between 
better  living  and  better  work  that  they  have  neither 


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The  Bargain  Theory  of  Wages. 


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scrupled  nor  hesitated  to  indulge  in  a  good  deal  of 
miscellaneous  condemnation  of  those  short-sighted 
employers  who  cannot,  or  will  not,  read  the  lessons 
of  history. 

Yet  the  very  facts  which  they  adduce  in  support 
of  their  contention  seem  to  afford  some  sort  of  justi- 
fication for  the  "  short-sighted  "  employer.  An 
employer  may  recognize  fully  that,  in  the  long  run, 
higher  wages  might  not  be  a  bad  investment,  and 
yet  be  unable  and  unwilling  to  make  the  experiment. 
The  laborer  sells  his  labor,  but  he  remains  his  own 
master ;  and,  when  his  contract  has  expired,  may  take 
himself  off  when  he  pleases.  We  do  not  hear  so 
much  nowadays  of  Jcshurun  waxing  fat;  but  the 
danger  of  the  sequel  may  reasonably  enough  impress 
the  mind  of  a  cautious  employer.  He  pays  better 
wages  and,  after  a  time,  the  laborer  is  able  to  do, 
and  probably  does,  better  work ;  but  before  the  em- 
ployer has  been  fully  recouped  for  his  advantages 
the  laborer  may  take  himself  off.  It  is  true  that 
there  is  not  very  much  reason  why  he  should  change 
his  employer ;  but 'the  chances  and  changes  of  life 
are  infinite.  The  experience  of  other  employers  and 
of  other  countries  and  the  evidence  from  industrial 
history,  then,  may  render  the  successful  issue  of  the 
experiment  very  probable ;  but  they  do  not  guaran- 
tee the  individual  employer  against  risk.  Therefore, 
although  it  may  be  admitted  that,  where  wages  are 
very  low,  the  return  to  the  investment  may  come  so 
quickly  that  the  risk  is  very  small,  it  does  not  follow 
that,  when  wages  are  not  extremely  low,  the  result 


HI 


The  Leap  in  the  Dark, 


85 


will  be  so  immediate  and  so  favorable.  Similarly, 
although  the  experience  of  England  in  the  working 
of  the  Factory  Acts  and  the  shortening  of  the  hours 
of  labor  may  justify  experiments  in  Germany  and  in 
the  United  States,  it  does  not,  and  cannot,  prove 
that  the  next  experiment  in  England  in  the  same 
direction  will  be  a  success.  There  is  some  limit  to 
a  profitable  reduction  of  hours  as  there  is  to  an  eco- 
nomical intensification  of  labor;  and  it  may  be,  as  a 
witness  before  the  Canadian  Labor  Commission  put 
it,  that  a  further  reduction  "  might  be  the  last  straw 
which  sometimes  breaks  the  camel's  back."  * 

The  opinion  cf  the  witness  as  to  the  particular 
limit  may,  or  may  not,  be  correct,  but  there  is  no 
doubt  that  there  is  a  limit.  The  larger  the  number 
and  the  greater  the  extent  of  the  earlier  experiments, 
the  more  uncertain  will  be  the  issue  of  the  next  one. 
The  statistics  quoted  show  that  there  is  some  good 

*  Canadian  Labor  Commission,  Ontario  Evidence,  p.  744.  Mr. 
Tuckett  (tobacco  manufacturer,  Hamilton).  Witness  had  reduced 
the  hours  in  his  factory  from  ten  to  nine  without  making  any  reduc- 
tion of  wages  or  finding  any  reduction  in  the  product. 

"  Q.  Having  found  the  nine-hour  movement  profitable  and  satis- 
factory, could  you  not  reduce  it  still  more  with  the  same  result?  A. 
It  might  be  the  last  straw  which  sometimes  breaks  the  camel's  back. 

'*  Q.  You  think  that  nine  hours  is  a  fair  limit?  A.  I  think  so; 
from  what  I  have  seen  and  heard  I  think  it  has  proven  to  be  about 
the  limit. 

"  Q.  You  have  not  tried  any  other?  A.  Of  course,  I  am  only 
speaking  of  what  I  have  read  in  the  papers  of  the  United  States.  I 
find  that  the  jumping  into  the  eight  hours  has  caused  a  great  deal  of 
trouble  ;  it  is  going  too  far  the  other  way.  There  is  always  a  happy 
medium." 


I*  ,-. 


; 


i^ 


86 


The  Bargain  Theory  of  Wages, 


11  ^  i 


\\   ' 


ground  for  hesitation.  When  wages  are  arbitrarily 
raised,  or  vhen  hours  are  reduced,  the  output  does 
not  always  increase  proportionally ;  and  unless  the 
efificiency  of  the  laborer  increases  at  once,  and  pro- 
portionally to  the  rise  in  his  wages,  or  unless,  in 
spite  of  the  reduction  of  the  hours,  the  output  is  at 
least  maintained,  then  the  profits  of  the  employer 
suffer.  However  willing  the  employer  may  be  to 
wait  to  recoup  himself,  the  conditions  of  competition 
may  not  permit  him  so  to  wait.  If  he  is  carrying  on 
business  on  a  borrowed  capital  and  has  to  meet  obli- 
gations from  day  to  day,  the  margin  is  probably 
already  cut  too  close  to  allow  him  to  lock  up  part  of 
his  resources  in  the  hope  of  a  somewhat  uncertain  re- 
imbursement. If,  moreover,  in  the  market  he  has 
to  meet  competitors  who  are  not  making  any  experi- 
ment and  not  incurring  any  loss,  even  for  the  time 
being,  it  may  be  impossible  for  him  to  maintain  his 
ground,  and  thus  a  temporary  loss  may  turn  out  to 
be  final  and  irretrievable.  The  English  manufacturer 
fears  the  competition  of  the  foreigner,  and  the  New 
England  manufacturer  the  competition  of  the  new 
mills  in  the  Southern  States ;  and  they  declare  that 
in  face  of  this  competition  they  cannot  safely  lock 
up  part  of  their  resources.  If  a  manufacturer  hesi- 
tate to  add  one  other  element  of  uncertainty  to 
business,  he  is  at  any  rate  not  open  to  the  charge 
of  being  short-sighted.  An  employer,  strong  in  his 
resources,  strong  in  the  hold  which  he  has  on  his 
customers,  and  strong  also,  perhaps,  in  the  attach- 
ment of  his  men  to  his  service,  may  be  able  to  make 


Fluctuations  of  Wages  and  Output. 


87 


such  experiments;  and  in  this  case,  as  in  many 
others,  as  Professor  Walker  has  shown,*  it  is  the  in- 
competent employer  who  is  the  worst  enemy  of  the 
working  classes. 

The  higher  the  wages,  and  the  higher  the  standard 
of  comfort,  the  more  uncertain  does  it  become  that 
the  standard  of  efficiency  will  rise  with  every  rise 
of  wages,  however  slight,  and  rise  correspondingly. 
Brentano,  however,  takes  the  position  that  they  do. 
In  his  Hours y  Wages,  and  Production,  he  claims  that, 
in  the  years  1872,  '73,  '74,  production  increased 
and  then  diminished  as  wages  rose  and  fell : 

"  According  to  the  official  records,  the  year  of  the 
great  rise  in  wages  in  the  largest  state  mines,  1872,  was 
followed  by  a  considerable  increase  in  the  average  out- 
put of  the  workmen.  .  .  .  Another  official  investi- 
gation, entitled  *  Contribution  to  the  Statistics  of  the 
Dortmund  Mining  District,'  by  a  mining  official  named 
Hiltrop,  showed  in  fact  that,  in  the  above-named  mining 
district,  the  general  fall  of  wages  in  1874  was  accom- 
panied by  a  diminution  of  production."  f 

The  figures  undoubtedly  show  that  the  output 
increased ;  and  we  know  that  there  was  a  rise  in 
wages  (the  figures  of  variations  in  wages  are  not 
given,  in  this  instance,  for  comparison);  but  we 
have  still  to  settle  which  was  cause  and  which  effect. 
The  fluctuations  of  wages  in  these  years  followed 

*  Walker,  Political  Economy,  Part  IV. ,  cliap.  iv. 

f  Brentano,  Hours,  Wages,  and  Production,  pp.  11,  12, 


J 


'.  i  i 


,  i 


m 
% 


1 


88 


The  Bargain  Theory  of  Wages, 


ii 


each  other  quickly.  Higher  wages  can  lead  to  in- 
c  I  eased  efificicncy  only  if  they  are  spent  in  such  a 
way  as  to  improve  the  physical  condition  of  the 
workers;  and  the  tradition  of  the  extravagant  ex- 
penditure of  the  working  classes  during  these  years 
— feeding  their  bull-dog  pups  on  cream,  as  the  Mid- 
lothian miners  were  said  to  do — shows  that  the  higher 
wages  were  not  necessarily  so  spent.  A  sudden  in- 
crease of  wages,  unfortunately,  frequently  means  an 
increase  of  dissipation.  Chancellors  of  the  Exchequer 
have,  on  occasion,  lamented  with  somewhat  chas- 
tened sorrow  the  increase  of  the  revenue  from  ex- 
cise during  years  of  prosperity ;  which  means  that 
the  increased  wages  are  not  being  spent  in  a  manner 
which  will  increase  efficiency. 

The  causal  connection,  in  this  instance,  is  almost 
surely  from  production  to  wages.  Prices  rose  and 
the  mine-owners  and  other  employers,  naturally  de- 
siring to  take  full  advantage  of  the  rise,  endeavored 
to  increase  their  output.  The  employees  were 
aware  that  prices  were  rising  and  demanded  their 
share;  and  the  employers,  rather  than  face  labor 
troubles  at  such  a  time,  yielded  the  demand,  being 
willing  to  sacrifice  a  part  of  the  increased  profit 
rather  than  lose  the  whole. 

Brentano's  argument  is  evidently  based  on  the 
assumption,  which  we  cannot  admit,  that  the  laborer 
at  all  times  works  up  to  his  efficiency,  and  that  an 
increase  of  his  output  must  be  due  to  an  increase  of 
his  efficiency.  But  the  laborer  does  not,  as  a  rule, 
do  his  best;  and  his  output  might  be  largely  in. 


'M 


Output  and  the  Standard  of  Efficiency.        89 


creased  without  any  change  in  the  standard  of 
efificiency.  If  we  take  the  actual  output  as  a  measure 
of  efificiency,  we  are  stating  a  merely  identical  propo- 
sition when  we  assert  that  the  increased  output  is 
due  to  a  rise  in  the  standard  of  efficiency.  An  in- 
crease of  wages  can  cause  a  rise  of  efficiency  only  if 
each  laborer  is  doing  his  best ;  and  the  trade-union 
and  general  working-class  objection  to  the  man  who 
works  his  hardest,  which  Mr.  Schloss  describes,* 
shows  us  that  we  cannot  measure  efficiency  merely 
by  output.  An  increase  of  the  output  might  occur, 
even  without  a  rise  in  wages  and  a  consequent  im- 
provement of  the  standard  of  living,  if,  in  some  way 
or  other,  by  a  change  of  the  method  of  remuneration, 
as  in  profit-sharing,  for  instance,  the  laborer  could 
be  induced  to  work  up  to  his  efficiency.  There  may 
be  other  methods,  but  the  surest  method  of  inducing 
a  man  to  the  best  that  in  him  lies,  is  to  offer  him 
the  prospect  of  higher  wages.  This  is  what  actually 
happened  in  the  early  seventies.  The  mine-owners 
paid  higher  wages  and  got  more  work  out  of  their 
laborers ;  but  the  miners  did  not  spend  the  increase 
in  making  themselves  more  efficient,  and  so  it  came 
about  that,  when  depression  occurred,  and  the  mine- 
owners  no  longer  offered  the  inducement  to  extra 
exertion,  the  miners  fell  back  into  their  old  habits 
and  came  just  as  much  short  of  their  efficiency  out- 
put as  before.  Had  they,  by  wise  expenditure  of 
the  higher  wages,  made  themselves  more  efficient, 
the  output  would  not  have  fallen  back  to  its  former 

♦  Schloss,  Th(  Methods  of  Industrial  Remuneration^ 


Hi 


!     I 


Ml; 


iH 


90 


The  Bargain  Theory  of  Wages. 


'5      1 


ii 
I 

pi 


level,  even  supposing  their  old  slovenly  habit  of  not 
doing  their  best,  without  special  inducement,  had 
reasserted  itself.  Their  best  then  would  have  been 
so  much  better.  A  more  "  plentiful  subsistence  " 
will  no  doubt  increase  the  output,  but  it  is  not  the 
only  nor  an  immediate  method  of  increasing  it. 
"  The  wages  of  labor  are  the  encouragement  of  in- 
dustry," and  high  wages  operate  directly  to  make  a 
man  come  up  to  his  standard  of  efficiency.  If  the  high 
wages  continue,  and  are  wisely  expended,  indirectly 
they  may  also  help  to  raise  the  standard ;  but  since 
the  standard  of  comfort  can  be  raised  only  gradually 
and  slowly,  and  efficiency  can  only  be  slowly  changed 
as  the  result  of  a  more  plentiful  subsistence,  the  in- 
direct effect  cannot  be  anything  like  so  apparent,  or 
so  immediate,  as  Brentano  asserts  it  to  be. 

But,  even  under  the  assumption  that  an  increase 
of  the  output  can  be  only  due  to  an  increase  of 
efficiency,  the  comparative  statistics  on  which  so 
much  reliance  is  placed  to  prove  that  higher  wages 
increase  efficiency,  do  not  bear  out  the  conclusion. 
What  should  be  proved  is  that,  for  every  rise  in 
wages,  there  is  a  corresponding  increase  in  the  out- 
put :  what  is  proved  is  that  every  rise  of  wages  is 
accompanied  by  an  increased  output.  We  can  best 
make  clear  the  hiatus  in  the  proof  by  taking  the 
comparative  tables  and  expressing  them  as  variations 
from  a  common  index  number.  Take,  for  instance, 
the  tables  quoted  by  Brentano  comparing  wages  and 
output  in  the  textile  industries  at  different  periods 
and  in  different  countries. 


Variations  of  Output  and  Wages. 


91 


COMPARISON   OF   WAGKS   AND   OUTPUT  OF   COTTON 
SPINNERS,  ENGLAND.* 


PERIOD. 


AVERAC.E  PRODUCT 
I'ER  WORKER. 

1844-46 100 

1859-61 133    

1880-82 200 


AVERAGE 
WAGES. 

..    100 

..    II-^ 

..    154 


COMPARISON  OF  WAGES  AND    OUTPUT   OF  COTTON 
WEAVERS,  ENGLAND.* 


PERIOD. 


AVERAGE 
PRODUCT. 

1844-46 100    .  .  . 

1859-61 192    .  .  . 

1880-8 1 243    .  .  . 


AVERAGE 
WAGES. 

.  .    100 

..    125 


INTERNATIONAL  COMPARISON  OF  WAGES  AND  OUT- 

PUT  IN  WEAVING.* 


COUNTRY. 


OUTPUT. 


WEEKLY 

WAGES. 

Germany 100      100 

England 153.6   139.5 

INTERNATIONAL  COMPARISON  OF  WAGES  AND  OUT- 
PUT IN  COAL  MINING,  f 

ANNUAI 
COUNTRY.  OUTPUT.  ,., .  " " 

WAGES, 

United  States,  1880 100 100 

Pennsylvania,  1880 148  103 

North  Staffordshire,  1884 84  77 

Saarbrlick  Collieries 68 69 

Dortmund  Collieries 74 68 

The  general  arguments  in  favor  of  shorter  hours 
are  open  to  similar  objections.  There  is  the  same 
hiatus  in  the  proof  that  shorter  hours  mean  larger 

*Brentano,  op.  cit.,  pp.  62,  68. 

t  Schoenhof,  Economy  of  High  Wages,  p.  209. 


^!;P 


I 


i  I 


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h  1 1 


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f 


\      ' 


92 


T/ie  Bargain  Theory  of  Wages, 


1  'i 


.     4 


li  ; 


production.  Wc  arc  concerned  only  with  that  part 
of  the  agitation  for  a  shorter  working  day  which 
claims  that  wages  need  not  be  reduced  correspond- 
ingly. If  the  working  classes  will  submit  to  a  re- 
duction of  wages  corresponding  to  the  reduction  of  ' 
hours  the  problem  becomes  entirely  different  and  has 
nothing  to  do  with  the  theory  that  a  higher  standard 
of  living,  whether  made  possible  by  higher  wages  or 
by  greater  leisure,  is  the  cause  of  greater  efificiency. 
The  figures  do  not  bear  out  the  contention  that  be- 
cause greater  leisure  means  greater  efficiency  an  em- 
ployer may  safely  continue  to  pay  the  same  wages 
per  week  afte  *  he  has  reduced  the  hours  of  labor. 
In  the  long  run  this  may  be  the  result,  but  there 
will  be  immediate  loss  to  the  employer,  which  he 
may  not  be  able  to  afford.  The  change  is  an  ex- 
periment and  an  experiment  has  never  a  certain 
issue.  The  argument  demands  a  closer  connection 
between  mere  physical  strength  and  efficiency  than 
actually  exists.  The  difference  between  a  working 
week  of  sixty  and  a  week  of  fifty-eight  does  not  give 
so  much  more  time  for  rest  and  recreation,  does 
not  imply  so  greatly  diminished  a  demand  on  the 
energy  of  the  worker  that  we  can  look  for  him  to 
make  up  from  this  source  alone  the  wages  of  the 
two  hours  he  has  sacrificed.  He  may  work  harder 
in  order  to  still  earn  his  old  weekly  wages ;  but  that 
is  not  the  meaning  of  the  assertion  that  the  shorter 
hours  have  made  it  possible  for  him,  for  the  first 
time,  to  work  harder.  In  the  long  run  we  may  ad- 
mit that  the  contention  may  be  borne  out  by  the 


Tfie  Leap  in  the  Dark. 


93 


facts ;  but  the  theory  implies  that  it  is  borne  out  in 
the  short  run ;  and  in  so  doing  it  tries  to  prove  too 
much.  The  reduction  of  hours  where  the  worl<ing 
day  has  not  previously  been  excessive,  without  a 
corresponding  reduction  of  the  daily  or  the  weekly 
wages,  is  an  industrial  experiment  which  the  issue 
may  or  may  not  justify.  It  may  be  that  the  em- 
ployer is  as  a  rule  over-cautious  in  making  the  experi- 
ment,* but  it  ought  to  be  admitted  that  he  is  being 
asked  to  make  an  experiment. 

♦  This  general  argument  against  shortening  the  hours  of  labor 
which  an  individual  employer  may  justifiably  use  is  frequently  sup- 
plemented by  the  declaration  that  where  machinery  is  largely  em- 
ployed the  efficiency  of  the  laborer  has  no  effect  on  the  product.  This 
argument  finds  emphatic  and  enlightened  expression  in  an  article  on 
P'actory  Legislation  in  the  United  States  in  Bulletin  of  the  National 
Association  of  Wool  A/anufacttirers  {Se\ncmheT,  1895).  "A  given 
amount  of  machinery,  no  matter  how  perfect,  cannot  be  so  speeded  as 
to  turn  out  a  product  in  fifty-eight  hours,  equal  to  that  of  the  same 
machinery  running  sixty  hours  just  over  the  border  line.  ...  It  is, 
therefore,  true  that  the  difference  of  two  hours  a  week  between  Massa- 
chusetts and  Rhode  Island,  assuming  that  wages  are  the  same  in  both 
States  notwithstanding  that  difference,  may  be  ample,  in  and  of  itself, 
to  make  the  difference  between  running  the  mill  at  a  profit  and  running 
it  at  a  loss.f  ...  A  steam  engine  will  drive  machinery  at  the 
same  rate  of  speed  the  world  over.     A  modern  spindle  will  make 

t  "  As  it  is  now,  a  Rhode  Island  mill  of  two  thousand  looms  can  produce  twenty 
thousand  yards  per  week,  or  a  million  yards  per  year,  more  of  print  cloth  than  one 
in  Massachusetts,  as  the  difference  between  fifty-eight  and  sixty  hours  per  week  " 
(Boston  Commercial  Bulletin).  This,  however,  is  little  more  than  an  unqualified 
reassertion  of  an  old  fallacy  that  machinery  does  away  with  skill  and  makes  but 
slight  demands  of  the  energy  of  the  operative.  This  was  the  argument  of  the  early 
English  factory-owners,  and  under  influence  of  this  idea  the  elder  Sir  Robert  Peel 
declared  that  the  factory  system  had  become,  instead  of  a  blessing  to  a  nation,  its 
bitterest  curse.  The  same  line  of  argument  would  also  dispose  of  the  general  ad- 
mission the  writer  in  the  Bulletin  is  inclined  to  make,  that  an  eleven  hours'  day  is 
more  productive  than  a  thirteen  or  a  fourteen  hours'  day. 


V 


H 


ii 


94 


The  Bargain  Theory  of  Wages, 


This  first  version  of  the  producti'  ity  theory,  which 
asserts  that  the  direction  of  the  causal  relation  is 
from  higher  waj^es  to  increased  production,  resembles 
the  more  scientific  statements  of  the  subsistence 
theory  in  one  important  particular.  Both  theories 
recognize  that  it  is  necessary  to  provide  some  sort  of 
justification  and  assurance  that  the  industrial  experi- 
ment of  paying  higher  wages  which  they  propose 
will  not  lead  to  a  disastrous  issue.  In  the  one  case, 
the  higher  wages  which  are  in  consequence  of  a 
higher  standard  of  life  are  proved  to  be,  in  the  long 
run,  economical  and  therefore  justifiable.  Higher 
wages  mean  an  increased  demand  for  commodities, 
and  the  demand  of  the  working  classes  is  so  great 
and  so  steady  that  more  economical  processes  of 
production  can  be  introduced  and  the  total  output, 
therefore,  increased.  In  the  second  case,  the  higher 
wages  lead  directly  to  an  increase  in  the  efficiency 
of  one  of  the  agents  of  production,  labor,  not  capital 


",•  ■ 

»  ,. 

9000  revolutions  per  minute,  whether  located  in  Massachusetts  or  in 
the  Piedmont  refjion  of  the  South.  A  loom  adjusted  to  150  picks 
per  minute  in  the  one  section  will  be  adjusted  to  the  same  speed  in 
another.  No  appliance  of  Yankee  inj^enuity  for  rsducing  labor  cost, 
saving  materials,  or  expediting  processes,  fails  of  adoption  everywhere 
as  soon  as  its  value  is  proven.     .     .     . 

"  It  follows  that  in  a  State  where  ten  hours  is  the  legal  day,  the 
production  of  a  mill  will  not  equal  by  ten  per  cent,  the  production  of 
a  similar  mill  engaged  upon  the  same  class  of  work  in  a  State  where 
eleven  hours  constitute  a  day's  work,  provided  that  the  management 
is  equally  efficient. 

"  This  is  as  susceptible  of  proof  as  a  problem  in  mathematics.  It 
has,  in  fact,  been  repeatedly  demonstrated  in  the  experience  of  New 
England  manufacturers  "  (pp.  264-266). 


Second  Version  of  the  rroduetivity  Theory.      95 


in  this  instance,  and  consequently  to  a  larger  out- 
put. In  both  cases  the  advance  of  wages  is  arbi- 
trary, and  in  a  sense  accidental,  but  the  advance 
sets  forces  at  work  which  in  the  long  run  provide 
an  ex  post  faeto  justification  for  the  advance.  In 
the  long  run,  there  is  no  doubt  that  an  advance  of 
wa^  -^  will  justify  itself,  economically,  either  in- 
directly as  the  first  theory  or  directly  as  the  second 
suggests:  the  trouble  is  that  a  failure  of  the  coinci- 
dence of  the  short  run  and  the  long  run  may  prevent 
the  trial  of  the  experiment  altogether. 

The  other  version  of  the  theory  has  more  to  com- 
mend it.  It  approaches  the  problem  from  the  right 
end  and  does  not  need  to  postulate  industrial  ex- 
periments to  prove  its  truth.  It  takes  its  stand  on 
the  indisputable  fact  that  when  more  is  produced 
the  employer  can  afford  to  pay  more,  absolutely,  if 
not  relatively,  for  labor;  and  asserts,  or  assumes, 
that  competition  will  transfer  to  the  laborer  all  that 
he  has  produced.  This  is  the  form  of  the  produc- 
tivity theory  which  should  commend  itself  to  the 
employer,  for  it  involves  no  addition  of  uncertainty 
or  risk  to  business,  and  demands  no  leaps  in  the 
dark.  Because  of  the  possibility  of  waste  of  the 
raw  material  or  of  carelessness  in  the  handling  of 
delicate  machinery,  the  advocates  of  this  version  are 
ready  to  admit  that  it  is  better  to  pay  higher  wages 
than  to  pay  low,  and  give  their  consent  to  the  doc- 
trine of  the  economy  of  high  wages.  But  they  reject 
the  popular  inference  that  the  only  way  to  increase 
production  is  to  raise  wages.     Wages  may,  for  the 


96 


The  Bargain  Theory  of  Wages, 


■I    t. 


!  ■ 


'i 


time  being,  rise  above  the  efficiency  limit;  but,  in 
the  nature  of  things,  such  a  rise  must  be  temporary ; 
and  their  contention  is  that,  m  the  long  run,  the 
only  real  and  effective  measures  for  raising  wages 
are  those  which  seek  to  raise  the  standard  of  the 
laborer's  efficiency.  A  rise  due  to  any  other  cause 
is  accidental :  a  rise  of  wages  which  follows  from  in- 
creased efficiency  will,  in  all  probability,  be  a  per- 
manent rise  because  it  has  been  granted  on  account 
of  the  competition  of  employers  among  themselves. 
Higher  efficiency  of  labor  gives  the  possibility  of 
greater  profits,  and  the  prospect  of  higher  profits 
means  keener  competition  among  the  employers  for 
workmen  and  the  consequent  transfer  to  the  workers 
of  the  whole  or  the  greater  part  of  the  extra  profits. 
Competition,  however,  is  not  so  active  in  the  inter- 
ests of  the  workers  as  this  version  assumes,  because, 
in  the  first  place,  the  competition  of  the  masters 
with  each  other  for  labor  is  offset  by  the  competi- 
tion of  laborers  with  each  other  for  employment, 
and,  in  the  second  place,  the  competition  of  the 
masters  is  rapidly  being  replaced  by  combination 
and  joint  action. 

Care  is  not  always  taken  to  distinguish  whether  it 
is  the  increment  of  the  output  due  to  the  increased 
efficiency  of  labor,  or  more  or  less  than  this  amount, 
that  is  transferred  to  labor  by  competition ;  and  fre- 
quently confusion  has  arisen  on  this  account.  There 
are  obviously  other  means  of  increasing  the  output 
than  raising  the  efficiency  of  labor,  and  the  ques- 
tion which  this  version  seems,  ex  hypothesis  to  de- 


Increased  0?(fput  and  Increased  Wages.        97 


cide  in  the  negative  is  whether  labor  obtains  any 
share  of  the  increase  in  the  product  which  has  arisen 
from  any  other  cause.  To  admit  that  labor  does, 
or  can,  receive  a  share  of  what  it  did  not  help  to 
create  is  to  abandon,  or  at  least  to  modify  seriously, 
the  productivity  theory  and  to  substitute  for  a  law 
of  wages  the  merely  vague  and  general  statement 
that  out  of  a  larger  product  larger  wages  can  be 
paid.  If  labor  permanently  receives  either  more  or 
less  than  the  amount  fixed  by  its  efificiency,  we 
must  altogether  abandon  the  notion  that  labor  re- 
ceives a  determinate  share,  as  by  right,  or  adopt,  in 
its  place,  the  make-shift  explanation  that  labor's 
share  of  the  product  is  residual. 

A  close  examination  of  the  facts  seems  to  indicate 
that  the  one  alternative  or  the  other  must  be  ac- 
cepted. The  great  increase  of  the  product,  which 
comparative  statistics  show,  has  not  been  due,  in  any 
large  degree,  to  an  improvement  in  efficiency. 
There  has  been  during  the  last  half-century  a  steady 
increase  in  the  average  amount  of  capital  necessary 
to  set  a  laborer  at  work  and,  at  the  same  time,  in 
the  amount  of  capital  necessary  to  produce  a  product 
of  a  given  value ;  or,  to  put  the  same  fact  more  con- 
cretely, an  increased  application  of  machinery  in 
production.  The  consequence  is,  as  we  might  ex- 
pect, that  although  the  product  of  industry  has  in- 
creased, the  proportion  of  the  product  going  to 
labor  has  diminished.  Absolute  wages  may  have 
increased,  but  relative  wages  have  diminished.  It 
is  what  we  might  expect,  because  the  amount  of  the 


■i 


i 


:l 


(H 


w 


if 


h\ 


m 


M    i 


i 


98 


T/ie  Bargain  TJicory  of  Wages 


capital  invested  has  increased  more  rapidly  than  the 
product.  If  we  take  the  wages  paid  in,  the  amount 
of  capital  invested  in,  and  the  total  product  of,  the 
mechanical  and  manufacturing  industries  in  the 
United  States,  in  i860,  as  each  equivalent  to  100, 
we  find  that  in  1890  the  capital  invested  would  be 
represented  by  546  and  the  product  by  397  and  the 
wages  by  168. 

COMPARISON  OF  INDUSTRY  IN  i860  AND  1890  IN  U.  S. 


i860 
1890 


CAPITAL. 
.  .  100  . . 
..    546    .. 


PRODUCT. 
, . .    100    . . 

■•■397     . 


WAGES. 
.  .    100 
..    168 


We  find  similar  results  in  the  development  of  in- 
dustry in  Canada,  though  we  cannot  carry  the  com- 
parison so  far  back. 

COMPARISON  OF  INDUSTRY  1881  AND  1891  IN  CANADA. 


1881 
1891 


CAPITAL. 
. .  100  . . 
..    215    .. 


PRODUCT. 
. . .  100  . . 
...    153    .. 


WAGES. 
.  .    IOC 
.  .    117 


The  following  tables  bring  out  the  same  results  in 
another  way.  They  compare  the  amounts  of  capital 
employed  to  produce  a  product  valued  at  $100,  and 
the  percentage  of  the  net  product,  /.  r.,  of  the 
product  minus  the  raw  material,  that  goes  to  labor. 


UNITED  STATES. 

CAPITAL  PER  $100 
OF  PRODUCT. 


1850, 
1890. 


$52.32 
69.62 


PERCENTAGE  OF 

PRODLCT  GOING 

TO  LABOR. 

51 

45 


" 


r 


Increased  Output  and  Increased  Wages.        99 


CANADA.* 

CAPITAL  I'ER  $100 
OF  I'ROUUCT. 


1881, 
I89I. 


$53.07 
74.36 


TERCENTAGF.   OF 

PRODUCT   (iOlNG 

TO  LAliOR. 

457 

45.7 


The  results  support  the  conckision  we  have  aheady 
drawn  from  the  comparative  tables,  given  on  p.  91, 
that  there  is  no  exact  parallelism  between  the  ad- 
vance of  wages  and  the  increase  of  the  product.  The 
comparison  shows  also,  however,  that,  in  spite  of  the 
increased  proportion  of  capital  employed,  the  rela- 
tive share  of  the  product  going  to  capital  has  not  in- 
creased, and  the  relative  share  going  to  labor  has  not 
diminished  correspondingly.  Labor  has  been  able  to 
make  good  a  claim  to  a  large  part  of  this  increased 
product.  The  capital  necessary  to  produce  a  value 
of  $100  has  increased  thirty-three  per  cent,  in  the 
industry  of  the  United  States,  but  the  share  going  to 
labor  has  been  diminished  by  a  little  more  than 
eleven  per  cent.  Thus  the  second  version  of  the  pro- 
ductivity theory  is  inadequate.  The  laborer's  contri- 
bution to  every  $100  worth  of  product  has  obviously 

♦  The  figures  for  Canada,  which  are  taken  from  The  Statistical 
Year  Book  of  Canada,  issued  by  the  Dominion  statistician,  are  open 
to  the  suspicion  of  partisanship.  The  Liberal  party  in  Canada  has 
always  declared  that  the  sections  of  the  census  of  1891  dealing  with 
industry  are  a  partisan  document,  intended  to  prove  that  the  National 
Policy  has  been  a  great  success.  Canada  is  admittedly  not  industrially 
as  far  developed  as  the  United  .States,  and  it  can  hardly  be  the  case 
that  there  has  been  a  greater  increase  in  Canada  in  ten  years  than  in 
the  United  States  in  forty  years  in  the  amount  of  capital  necessary  to 
produce  a  product  worth  $100.  The  amount  of  capit.1l  employed  to 
produce  a  product  of  a  given  value  is  a  sure  indication  of  the  stage  of 
industrial  development. 


100  Tkc  Bargain  Theory  of  Wages. 

fallen,  and  his  share  of  the  product  has  also  fallen, 
but  has  not  fallen  correspondingly.  It  is  true  that 
the  laborer's  contribution  to  a  given  product  does 
not  fall  in  the  same  degree  as  the  amount  of  capital 
is  increased.  The  intelligence  of  the  laborer  is  a  con- 
dition of  the  use  of  machinery.  The  laborer's  lack 
of  skill  and  general  intelligence  is  often  the  cause 
why  newer  and  more  elaborate  machinery  is  not  in- 
troduced ;  and  if  more  machinery  has  been  intro- 
duced it  must  have  been  because  the  higher  intelli- 
gence of  the  laborer  has  rendered  it  possible.  The 
increased  product,  therefore,  which  has  resulted 
from  the  greater  use  of  machinery  cannot  all  be 
attributed  to  the  increase  in  the  amount  of  capital 
employed.  But  the  intelligence  of  the  laborer  has 
not  improved  to  an  extent  sufficient  to  account  for 
the  fact  that  his  share  of  the  product  has  fallen  by 
only  eleven  per  cent.*  The  contention  of  Mr.  Mal- 
loch's  Labor  and  the  Popular  We/fare,  "  that  labor 
is  no  more  productive  to-day  than  it  was  a  century 
ago,"  is  only  an  exaggeration  of  the  important  fact 
that  the  increased  productivity  of  industry  is  not 
altogether  due  to  the  increased  intelligence  of  the 


working  classes. 


*  We  have  no  means  of  determining,  even  with  approximate  accu- 
racy, the  amount  of  the  increased  contribution  of  the  laborer  made  when 
machinery  is  employed.  In  one  case  we  do  know  that  all  of  the  in- 
crease of  the  product,  due  entirely  to  lal)or,  is  not  handed  over  to  the 
laborer.  This  is  the  case  of  Profit  Sharing.  "  Under  the  stimulus 
of  Profit  Sharing  the  workers  must  crea'e  the  additional  profits  they 
are  to  receive"  (Professor  Nicholson,  Contemporary  Review,  1890,  p. 
68) ;  but  they  do  not  receive  the  whole  of  the  additional  profit  they 
create. 


I 


The  Economy  of  High  Wages. 


lOI 


! 


The  cause  of  the  fact  that  the  relative  share  going 
to  labor  has  not  diminished  proportionally  with  the 
increase  in  the  use  of  capital  cannot  be  simply  that 
the  total  product  has  increased.  The  total  product 
is  not  so  large,  even  after  all  the  increase  of  recent 
years,  that  any  claimant,  through  satiety,  will  aban- 
don part  of  the  share  he  could  obtain.  The  i  eal 
reason  is  that  since  an  increased  use  of  machinery  is 
not  possible  without  the  active  co-operation  of  labor, 
the  position  of  the  laborer  has  been  improved.  His 
best  efforts  are  necessary  for  the  employment  of  this 
increased  capital  and  to  call  these  forth  the  capitalist 
has  been  compelled  to  offer  him  as  an  inducement  a 
larger  share  of  the  product  than  apparently  he  is 
entitled  to.  The  position  of  the  capitalist  has  been 
correspondingly  weakened  by  this  necessity.  The 
productivity  theory,  in  one  version  or  the  other,  has 
attained  general  acceptance  and  has  been  embodied 
in  a  practical  formula  regarding  the  economy  in  high 
wages.  This  formula  is  made  the  basis  of  the  en- 
lightened discussion  of  the  tariff  question  in  opposi- 
tion to  those  who,  ignorantly,  raise  the  cry  of 
"  pauper  labor,"  and  of  the  economic  discussion  of 
the  shortening  of  the  working  day,  in  opposition  to 
those  mechanical  ideas  of  labor  which  regard  the 
laborer  as  a  machine  which  must  necessarily  produce 
twice  as  much  in  sixteen  hours  as  in  eight.  The 
economy  of  high  wages  is  preached  as  a  gospel  of 
hope  for  the  laborer  with,  possibly,  not  a  very  clear 
recognition  of  the  consequence  that,  if  the  gospel  is 
true,  a  shortening  of  the  hours  of  labor  is  not  a 


1  .1 


I 


m 
ill 


r':. ! 


102 


T/ie  Bargain  Theory  of  Wages. 


lessening  of  labor  and  an  increase  of  wages  per  unit 
of  time  may  even  mean  a  diminution  of  wages  per 
unit  of  effort ;  and  there  is  both  surprise  and  indig- 
nation that  the  doctrine  should  ever  be,  or  have 
been,  called  in  question.  Yet  it  is  a  comparatively 
new  gospel  which  has,  within  thirty  years,  arisen  to 
supplant  the  depressing  doctrine  of  the  economy  of 
low  wages.  We  may  practically  date  the  new  theory 
from  the  early  fifties,  when,  to  the  immense  aston- 
ishment of  advocate  and  opponent  alike,  the  Factory 
Acts  did  not  ruin  English  industry,  but  inspired  it 
with  new  life.  The  accepted  doctrine,  down  to  the 
middle  of  the  century,  was  of  the  economy  of  low 
wages.  Even  those  who,  in  deference  to  Adam 
Smith,  had  accepted,  without  full  understanding,  a 
more  hopeful  doctrine,  rejected  incontinently  the 
practical  inference  that  a  sht  itening  of  the  hours  of 
labor  might  even  increase  productive  capacity. 
McCuUoch,  who  had  loyally  followed  Adam  Smith 
in  denying  that  high  wages  encourage  dissipation 
and  idleness,  and  Senior,  who  made  the  first  antici- 
patory steps  away  from  the  Wages-Fund  Theory 
to  the  Productivity  Theory,  were,  at  first  at  least, 
strenuous  opponents  to  the  Factory  Acts.  It  was 
Senior  whose  "  last  hour  "  gave  the  rallying  cry  to 
the  opponents  of  the  measure,  although  he,  like 
many  of  the  other  opponents  of  the  Factory  legis- 
lation, was  converted  by  the  unexpected  effects  of 
the  Act  on  the  textile  industries. 

The  doctrine  of  the  economy  of  low  wages  was  a 
natural,  though  perhaps  not  a  necessary,  inference 


i 


Hi 


The  Economy  of  Loiv  Wages. 


103 


from  the  Mercantile  theories  of  last  century,  as  it  is 
from  protectionist  theories  of  to-day.  It  is  signifi- 
cant, at  any  rate,  that  the  overthrow  of  Mercantilism 
was  followed  by  the  demonstration  that  the  inference 
from  it  was  not  consistent  with  thr  actual  experience. 
In  1845  the  repeal  of  the  Coin  Laws  marks  the  final 
overthrow  of  Mercantilism,  and  the  Ten  Hours  Law 
of  1847  ^^"^^  such  unexpected  results  in  stimulating 
industry  that  it  was  no  longer  possible  to  hold  the 
purely  mechanical  idea  of  labor.  As  the  triumph  of 
free  trade  was  the  end  of  a  long  process  of  change 
and  conversion,  so  the  practical  demonstration  by 
the  factory  act  was  all  that  was  needed  to  complete 
that  change  of  views  which  begins  with  Adam 
Smith's  enthusiastic  advocacy  of  the  doctrine  that 
cheap  labor  and  low-priced  labor  are  not  necessarily 
synonymous.  Senior  and  Lord  Brassey,  however, 
were  the  first  to  show,  by  means  of  extended  illus- 
trations and  statistics,  the  fallacy  of  the  older  view. 
They  did  not,  it  is  true,  advance  the  modern  theory 
in  its  unqualified  form.  They  suggested  an  indiffer- 
ence theory  to  the  effect  that  it  did  not  matter  much 
to  the  employer  whether  he  paid  high  wages  to  effi- 
cient men  or  low  wages  to  inefficient  men.  "  It  may 
be  supposed,"  says  Senior,  "that  the  price  of  labor 
is  everywhere  and  at  all  times  the  same, ' '  *  and  Lord 
Brassey  declares,  in  the  introduction  to  Foreign  Work 
and  English   Wages,  that  the  cost  of  work  as  dis- 

*  Senior,  Political  Economy,  p.  151.  See  also  ibid,  for  quotationfi 
from  the  evidence  of  McCuUoch  before  the  Committee  on  Artisanfi 
$ind  Machinery,  p.  144  et  seq. 


I 

li 

■ 


I 


1  M 


!■;•' 


M 


h 


r^ 


m  i' 


104 


T/w  Bargain  Theory  of  Wages, 


tinguishcd  from  the  daily  wage  of  the  laborer  is 
approximately  the  same  in  all  countries.  The  evi- 
dence on  which  Senior  and  Lord  Brasscy  rely  for 
this  doctrine  of  indifference  is  drawn  mainly  from 
manual  labor  and  their  theory  remains  practically 
true  so  far  as  manual  labor  is  concerned.  Some  of 
the  facts  and  figures  given  by  Lord  Brassey  do  in- 
deed support  the  more  advanced  doctrine  of  the 
economy  of  high  wages;  but  the  increased  cfticiency 
which  followed  each  extension  of  the  Factory  Acts 
is  the  real  cause  of  the  general  acceptance  of  the 
modern  doctrine.  The  Factory  Acts  had  been  ad- 
vocated as  a  moral  reform  and  justified  on  the 
ground  that  welfare,  not  wealth,  should  be  the  great 
object  of  government.  The  economic  justification 
of  the  Factory  Acts  probably  surprised  Lord 
Shaftesbury  as  much  as  it  confounded  Senior.  The 
abundant  economic  justification  of  the  principle  of 
the  Acts  forms  a  turning  point  in  wages  theory. 
Since  then  the  indifference  theory  has  become  the 
economy  of  high  wages ;  and  the  doctrine  has  been 
extended  to  cover  all  industry,  machine  industry  as 
well  as  manual  labor  in  which  machinery  is  not  much 
used.  The  facts  and  the  assumptions  of  the  theory 
have  been  already  discussed ;  but  it  is  necessary  to 
mention  one  other  consideration  that  is  of  great  im- 
portance. The  figures  which  are  advanced  in  proof 
and  illustration  compare  only  labor  costs;  and  labor 
cost  without  machinery  is  a  different  thing  from 
labor  cost  with  machinery.  We  must  include  in  the 
real  labor  cost  of  production  in  machine  industry  the 


Wag^c  Cost  and  Labor  Cost. 


105 


cost  of  the  labor-saving  macliine,  that  is,  the  ex- 
penses of  its  working,  and  the  contribution  to  the 
sinking  fund  to  replace  the  machine.  Machinery 
has  to  a  large  extent  reduced  the  nominal  labor  cost, 
but  statistics  are  lacking  to  show  how  far  the  real 
and  complete  labor  cost  has  been  reduced.  If  it 
takes  more  capital  in  the  form  of  machinery  to  set 
each  worker  at  work  in  one  country  than  in  another, 
there  may  be  no  ground  for  saying  that  the  higher 
wages  in  the  first  are  counterbalanced  by  the  greater 
productivity  of  labor.  The  larger  output  cannot  be 
a  measure  of  the  greater  efficiency  when  the  amount 
of  capital  required  to  produce  $100  of  product  is  in- 
creased. Brentano,  however,  regards  the  Report  of 
the  German  Iron  Inquiry  Commission  (1879)  ^'^  halt- 
ing, because  "  the  increased  capacity  of  production 
is  not  stated  to  be  the  exclusive  cause  of  the  increase 
in  the  average  output  of  the  individual  workman."  * 
The  advocates  of  the  economy  of  high  wages  are 
not  all  ready  to  go  so  far  as  Brentano.  He  even  de- 
clares that  the  policy  of  Lancashire  cotton  spinners 
and  weavers  in  demanding  factory  legislation  for 
Bombay  is  suicidal ;  because  the  only  reasonable  hope 
Lancashire  can  have  of  overcoming  her  disability  of 
distance,  alike  from  the  cotton-fields  and  from  a  large 
portion  of  her  market,  is  in  the  economy  of  high 
wages  and  in  the  greater  efficiency  which  has  resulted 
in  England  from  factory  legislation.  This  is  an  ex- 
treme position  which  is  not  often  taken.  It  is  gener- 
ally recognized  that  in  some  countries  cheaply  paid 

♦  brentano.  Hours ^  Wages,  and  Production,  p.  16, 


;!i 


! 


<    ! 


"'( 


i 


r 


1 06 


The  Bargain  Theory  of  Wages. 


I  ii 


H  : 


•m  i 


1% 


labor  is  really  cheap  labor.  These  countries  are  not, 
it  is  true,  the  industrially  developed,  and  the  excep- 
tion might  be  neglected  were  it  not  that  the  exception 
is  claimed  to  exist  within  the  United  States.  There 
has  of  late  been  a  good  deal  of  discussion  regarding 
the  removal  of  the  textile  industries  to  the  South; 
and  the  organs  of  the  manufacturer  allege  that  the 
movement  is  away  from  the  trade-union  and  factory 
legislation  sphere  to  regions  where  help  is  cheap, 
really  cheap  as  well  as  nominally  cheap.  To  the 
contention  that  the  Southern  help  is  less  efficient, 
they  reply  that  it  is  not  correspondingly  less  efficient 
than  the  higher-paid  Northern  help. 

"  The  other  argument  by  which  this  legislation  is 
defended  is  .  .  .  that  the  average  factory  labor  in 
Massachusetts  and  New  England  is  more  intelligent  than 
in  other  sections  of  the  country,  the  South  particularly, 
and  can  accomplish  more  and  better  results  in  shorter 
hours.  As  between  reasonable  and  unreasonable  hours 
there  is  validity  to  this  argument  ;  but  as  between  fifty- 
eight  and  sixty  hours  a  week  it  has  no  validity  whatever. 
What  we  have  just  said  relative  to  the  speed  of  machin- 
ery is  a  complete  answer  (see  above,  p.  93).  The  state- 
ment about  the  relative  intelligence  and  skill  of  New 
England  operatives  is  not  seriously  put  forth  by  persons 
familiar  with  the  present  status  of  factory  labor  in  the 
East.  The  bulk  of  that  labor  is  foreign-born  ;  its  aver- 
age intelligence  is  not  higher  than  the  average  intelli- 
gence of  similar  labor  in  other  States,  nor  so  high  as 
that  in  many  other  sections  of  the  country."  * 

*  Bulletin  of  the  National  Association  of  Wool  Manufacturers y 
pp.  268,  269. 


I 


i! 


The  Economy  of  Low  Wages* 


107 


There  is  therefore  more  to  be  said  for  the  indiffer- 
ence theory  or  even  for  the  economy  of  low  waj^es 
than  is  generally  admitted.  The  economy  of  hi^h 
wages  must  be  relative  to  many  conditions:  to  the 
existing  standard  of  comfort  and  the  possibility  of 
raising  it ;  to  the  effect  of  a  rise  in  the  standard  of 
life  on  efficiency;  to  the  existent  skill  and  intelli- 
gence of  the  workers;  and  to  the  extent  to  which 
machinery  is  employed. 

The  extreme  to  which  Brentano  has  carried  the 
doctrine  is  all  the  more  remarkable  that  he  has  him- 
self suggested  the  possibility  of  reconciling  these 
diverse  views,  whether  regarded  as  historically  suc- 
cessive views,  or  as  presently  opposed  opinions. 
He  admits  that  the  economy  of  low  wages  is  true 
not  only  of  the  seventeenth-  and  eighteenth-century 
workers  whom  Child  and  Petty  and  other  writers 
had  before  their  minds  when  they  wrote,  and  of 
workers  in  the  East,  but  also  of  laborers  in  the  back- 
ward country  districts  of  Germany;  but  for  all 
countries  and  districts  which  have  come  under  the 
influence  of  competition  and  progressive  ideas  the 
economy  of  high  wages  is  the  law.  The  reason  for 
this  distinction  is  the  difference  in  the  attitude  of 
the  men  towards  industry.  The  eighteenth-century 
workers  lived  and  worked  under  the  influence  of  cus- 
tom and  tradition.  This  is  true  also  of  the  worker 
in  backward  countries  and  districts.  His  stand- 
ard of  life  and  his  standard  of  efficiency  are  alike 
determined  for  him.  To  raise  his  wages  would  have 
no  effect  on  his  efficiency  unless  it  were  for  the  time 


\       i   il 


|i     1:1 


io8 


The  Bargain  TJicory  of  1 1  'ages. 


HI 


I 
1 

4-  4 


being  to  lower  it.  To  attempt  to  raise  the  standard 
of  his  efficiency  is  to  attempt  the  impossible,  l^ut 
the  worker  of  the  present  day  is,  to  a  very  large  de- 
gree, influenced  by  the  economic  motive;  and  the 
economy  of  high  wages  is  the  consequence.  The 
change  from  an  economy  of  low  wages  to  an  economy 
of  high  wages  was  brought  about  by  the  economic 
awakening  of  the  worker.  This  awakening  may  be 
due  either  to  migration,  to  new  industrial  conditions, 
or  to  a  change  of  the  conditions  in  which  the  worker 
lives.  Brentano  quotes  Doctor  Johnson  with  ap- 
proval: "  Established  custom  is  not  easily  broken 
till  some  great  event  shakes  the  whole  system  of 
things  and  life  sc  ms  to  recommence  on  new  princi- 
ples." The  influence  of  migration  on  labor  we  con- 
sider later,  but  the  same  result  may  be  effected  in 
the  history  of  a  people  by  industrial  changes  as  are 
effected  in  the  history  of  an  individual  by  migration 
or  emigration.  The  introduction  of  the  factory  sys- 
tem made  this  change,  first  in  England,  and  then  in 
America,  and  then  on  the  continent  of  Europe.  It 
created  competition  among  the  producers.  The  old 
system  of  autonomous  production  for  a  local  market 
gave  little  motive  for  exertion.  When,  however, 
large  amounts  of  capital  were  sunk  in  buildings  and 
machinery,  the  employer,  anxious  for  the  largest 
profit,  and  hating  to  see  his  capital  idle,  drove  his 
workmen,  with  the  result  of  the  hideous  excesses 
which  it  was  necessary  to  call  in  legislation  to  re- 
move and  to  prevent.  When  one  avenue  was  closed, 
the  employers  sought   another.      They  could  not 


The  Dynamic  Principle. 


109 


lengthen  the  working  day,  so  they  endeavored  to 
increase  the  intensity  of  working  and  in  their  anxiety 
for  profit  offered  inducements  to  hihor  to  exert  itself. 
Labor  could  be  induced  to  do  what  legislation  for- 
bade it  should  be  compelled  and  driven  to  do.  A 
powerful  new  motive  came  into  existence.  The 
laborer  could  be  induced  to  exert  himself  by  an  ap- 
peal to  his  self-interest,  and  the  economy  of  high 
wages  became  an  industrial  fact. 

Reference  has  already  been  made,  in  discussing 
the  two  earlier  theories,  to  the  attempts  made,  in 
various  ways,  to  secure  some  necessary  dynamic 
principle;  and  throughout  the  whole  treatment  of 
problems  of  distribution  there  is  an  evident  search 
for  some  determinant  quantity  by  reference  to  which 
we  may  determine  the  other  shares  of  the  product. 
The  distribution  of  the  product  of  industry- -the 
National  Dividend — seems  in  practice  so  definite 
and,  notwithstanding  strikes  and  kindred  social  (and 
unsocial)  phenomena,  so  deliberately  certain  that  it 
seems  almost  a  foregone  conclusion  that  there  should 
be  some  single  principle  discoverable,  in  virtue  of 
which  this  precision  exists.  When,  however,  we 
set  ourselves  to  judge  between  three  or  four  actual 
claimants  for  the  product,  the  problem  becomes 
perplexing  and,  apparently,  in  principle,  insoluble, 
unless  we  can  apportion  to  one  or  other,  or  more 
than  one,  of  the  claimants  a  definite  share  as  by 
necessity.  We,  therefore,  naturally  look  for  some 
given  quantity  or  quantities  which  will  enable  us  to 
solve  the  remainder  of  our  problem.     The  mathe- 


1!    'I 


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The  Bargain  Theory  of  Wages, 


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III 

If  '■;    ' 


matical  method,  however  valuable  it  may  be  for 
illustration  and  exposition,  is  not  quite  applicable, 
because  here  we  are  dealing,  not  with  rigid  quanti- 
ties, but  with  human  forces.  Economists  in  their 
treatment  of  distribution  have  generally  anticipated, 
or  adopted,  the  spirit  and  the  purpose  of  Mill's 
Logic  and  applied  the  methods  of  physical  science 
to  their  hivestigation  of  the  social  problems  of  dis- 
tribution. The  Method  of  Residues  seems  to  lend 
itself  most  readily  to  the  accomplishment  of  this 
particular  purpose;  and  various  attempts  have  been 
made  to  demonstrate  that  some  particular  share  in 
distribution  is  residual,  /.  ^.,  that  the  product,  de- 
duction being  made  of  certain  fixed  payments,  be- 
longs, by  necessity  and  by  right,  to  one  or  other  of 
the  claimants.  Physical  methods  are  more  or  less 
inadequate  to  deal  with  human  facts  and  forces  and 
the  result  of  their  use  has  generally  been  to  give 
to  some  element  an  unnatural  rigidity.  We  have 
need  in  economics,  as  well  as  in  metaphysics,  of  the 
Kantian  category  of  reciprocity. 

The  best-known,  and  most  generally  accepted, 
application  of  the  Method  of  Residues  in  economic 
science  is  found  in  the  classical  theory  of  rent. 
Rent  is  the  surplus  of  the  product  remaining  after 
the  expenses  of  production,  that  is,  the  wages  and 
the  profits,  have  been  deducted.  Land  on  the 
margin  of  cultivation  pays  no  rent  because  it  yields 
no  surplus,  no  residue  after  the  expenses  of  produc- 
tion have  been  met.  There  is  a  strong  tendency,  at 
present,  to  extend  the  area  of  the  conception  of  rent 


The  Residual  Method, 


Itl 


f 


and  apply  the  term  not  only  to  the  residue  of  the 
total  product,  but  also  by  analo;^y  to  any  returns  to 
labor  and  capital  which  exceed  the  normal  return  to 
such  labor  and  capital.  The  validity  of  residual 
process,  in  the  original  case  of  rent,  depends  obvi- 
ously on  the  truth  of  the  assumption  that  the  re- 
turns to  capital  and  labor  are  fixed  quantities.  If 
thv^se  are  variable — and  the  extension  of  the  concep- 
tion of  economic  rent  or  surplus  seems  to  indicate  that 
they  are  variable  in  some  degree — the  perplexities 
of  the  problem  of  distribution  are  resolved  only  in 
name,  and  the  residual  nature  of  Rent  is  purely 
formal.  To  Ricardo,  it  was  an  easy  conclusion  that 
Rent  was  a  residual  share.  Notwithstanding  his 
distinction  between  natural  and  market  wages  and 
his  concession  that  market  wages  might  remain  con- 
stantly and  for  an  indefinite  period  above  the  natural 
rate,  when  he  turned  to  the  consideration  of  the  other 
shares  of  the  product  he  seemed  to  think  of  natural 
wages  alone,  which  were  fixed  at  the  amount "  neces- 
sary to  enable  the  laborers,  one  with  another,  to 
subsist  and  to  perpetuate  their  race,  without  either 
increase  or  diminution."  Profits,  however,  are  not 
regarded  as  quite  so  definitely  determined.  The 
theory  of  profits  and  interest  had  not  in  Ricardo's 
hands  assumed  the  neat  concise  form  it  received 
from  later  economists.  Ricardo  had  failed  con- 
sistently to  state  a  distinction,  which  he  sometimes 
recognized,  between  the  gross  amount  of  profits  and 
profits  per  cent. ;  and  the  result  was  a  reckless  use 
of  the  proposition  that  wages  could  rise  only  at  the 


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T/ie  Bargain  Theory  of  Wages. 


expense  of  profits.  Later  writers  developed  more 
clearly  the  notion  of  a  necessary  rate  of  profits.  A 
certain  rate  of  profit  was  necessary  to  call  out  an 
effective  desire  to  accumulate  in  the  requisite  degree. 
But  we  can  hardly  say  that  Ricardo  put  forward  a 
natural  rate  of  profits  as  he  had  put  forward  a  natural 
rate  of  wages.  Rather  did  he  consider  inconsistently 
profits  as  also  being  a  residual  share.  Wages  could 
rise  only  at  the  expense  of  profit.  Consequently  we 
do  not  look  to  Ricardo  for  the  standard  exposition 
of  the  Ricardian  theory  of  rent.  In  his  exposition, 
rent  was  a  surplus  remaining  over  after  one  deter- 
minate and  one  indeterminate  share  had  been  paid 
out  of  the  product. 

The  neat  formula  of  Rent  as  equivalent  to  the 
product  minus  the  expenses  of  production — R  = 
(P  —  E) — was  not  presented  by  economists  till  the 
rise  of  the  class  of  simple  investors,  who  required  a 
fixed  rate  of  interest  as  a  reward  for  abstinence,  to 
induce  them  to  postpone  immediate  enjoyment  to 
the  necessary  extent,  had  made  it  possible  to  regard 
profits,  definitely  and  consistently,  as  a  fixed  share. 
The  Ricardian  doctrine  of  fixed  wages  had,  in  the 
meantime,  been  abandoned,  but  its  place  was  taken 
by  the  Wages-Fund  Theory,  which  made  wages  as 
definite  and  determinate  as  they  were  under  Ri- 
cardo's  theory.  Profits  were  thus  a  determinate 
amount  and  wages  were  a  determinate  amount  and 
the  residual  nature  of  rent  was  thus  neatly  estab- 
lished. While  the  Wages-Fund  Theory  was  main- 
tained, this  was  the  current  theory  of  distribution. 


Rent  as  Residual. 


"3 


It  was  based  on  the  two  assumptions  that  profits 
tended  to  a  minimum  (fixed  at  the  rate  necessary  to 
call  forth  the  requisite  degree  of  abstinence)  and  the 
determination  of  the  wages  fund  by  the  intention  of 
the  capital.  The  theory  was  not  firmly  established 
before  its  stability  was  threatened.  Mill  modified 
the  assumption  of  the  tendency  of  profits  to  an 
equality.  His  "  instability  of  unequal  profits  "  does 
not  afford  the  same  stable  basis  for  the  theory  of 
rent ;  but  the  residual  character  was  maintained 
until  the  Wages-Fund  Theory  was  abandoned,  and 
is,  indeed,  still  maintained. 

The  residual  nature  of  profits,  which  does  not,  to 
the  ordinary  business  mind,  seem  to  require  demon- 
stration, has,  except  in  Ricardo's  half-hearted  fash- 
ion, hardly  been  put  fo  rd;  but  the  residual 
character  of  the  reward  of  labor  is  part  of  the  current 
modern  theory  of  distribution.  Professor  Walker, 
after  demonstrating  that  wages  are  not  paid  out  of 
a  pre-accumulated  fund,  but  out  of  the  product,  de- 
clares that  wages,  in  a  very  real  sense,  are  not  paid 
out  at  all,  but  eire  what  remains  over  after  certain 
fixed  charges,  rents,  profits,  and  interest,  have  been 
met.  Rent  is  determined  by  the  margin  of  cultiva- 
tion, the  lands  which  yield  no  rent ;  and  profits  and 
interest  are  similarly  and  analogously  determined 
by  the  margin  which  just  gives  a  return  sufficient  to 
cover  expenditure. 

The  development  of  a  residual  theory  of  wages 
was  a  natural  outcome  of  the  attitude  of  economists 
towards  economic  history.     They  persisted  in  seeing 

8 


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The  Bargain  Theory  of  Wages. 


.'! 


in  the  past  only  a  series  of  ready-made  illustrations 
of  the  theories  of  the  present ;  and  when  such  illus- 
trations were  harder  to  find  than  usual,  or  not  so 
clearly  illustrative  of  the  theory  in  hand  as  might  be 
desired,  they  did  not  hesitate  to  invent  a  purely  fic- 
titious economic  history  and  treat  it  as  sober  fact. 
They  always  assumed  that  the  principles  which  gov- 
ern men's  conduct  at  our  present  stage  of  industrial 
development  are  but  more  complicated  forms  of  the 
principles  which  governed  the  primitive  man;  and 
regarded  it  as  at  once  a  necessity  and  a  virtue  to 
turn  to  the  early  instances  to  bring  these  principles 
into  clear  relief.  The  hired  laborer  who  receives,  at 
the  hand  of  another,  a  derivative,  not  an  original, 
share  of  the  product  is,  from  this  point  of  view,  re- 
garded as  in  the  same  position  as  the  original  auton- 
omous producer  who  was  the  final  owner  of  all  the 
fruits  of  his  labor  and  exertion.  Adam  Smith, 
although  he  did  not  in  terms  commit  himself  to  this 
view  of  history,  apparently  lends  to  it  the  sanction 
of  his  authority : 


«  ri 


1 

ii 

in 

IB 

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II 

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11 

Li' 

The  produce  of  labor  constitutes  the  natural  recom- 
pense or  wages  of  labor.  In  that  original  state  of  things 
which  precedes  both  the  appropriation  of  land  and  the 
accumulation  of  stock  the  whole  produce  of  the  labor 
belongs  to  the  laborer.  He  has  neither  landlord  nor 
master  to  share  with  him."  * 

Here  we  have  the  basis  of  the  residual  theory  and 

*  Wealth  of  Nations,  p.  27.     See  Mr,  Cannan's  Production  and 
Distribution,  pp.  200,  201. 


Wages  as  Residual. 


"5 


a  reason  for  rejecting  a  theory  of  wages  which  finds 
the  measure  of  wages  in  the  intention  of  the  em- 
ployer. What  we  have  really  to  explain  is  not  why 
the  laborer  receives  wages,  but  why  th^  whole  of  the 
product  of  industry  does  not  belong  to  him.  The 
explanation  is  that  as  industry  develops,  the  laborer 
comes  to  require  more  and  more  the  co-operation  of 
agents  of  production  which  are  not  in  his  possession  ; 
and  for  the  help  of  these  he  is  compelled  to  pay. 
The  price  he  pays  for  their  co-operation  must  be 
deducted  from  ^■'^e  resultant  product  before  we  have 
the  actual,  as  dibtinguished  from  the  natural,  recom- 
pense or  wages  of  labor. 

Adam  Smith's  suggestion  that  wages  might  be 
regarded  as  the  residual  share  of  the  product  was  not 
developed  by  his  immediate  successors;  but  it  has 
been  taken  up  and  amplified  as  the  basis  of  the 
modern  theory  of  wages.  This  revival  of  a  neglected 
doctrine  is  partly  due  to  the  growth  of  democracy 
and  the  consequent  tendency  to  exaggerate  the  in- 
dependence and  supremacy  of  the  working  classes  in 
the  labor  market ;  but,  mainly,  to  the  recognition  of 
the  fact  that  it  is  necessary  to  give  determining 
power  to  the  principle  of  which  the  law  of  wages  is 
the  expression.  The  early  theorie  endeavored  to 
do  so  directly.  The  Subsistence  Theory  provides 
a  minimum  below  which  wages  cannot  fall,  and  the 
Wages-Fund  Theory  treats  the  supply  of  labor  and 
the  demand  for  labor  as  definite  quantities  fixed  by 
extraneous  forces,  irrespective  and  independent  of 
each  other.     Professor  Walker  approaches  the  prob- 


Hill 
^  III  -I 


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The  Bargain  Theory  of  Wages. 


0 


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lem  in  a  more  roundabout  way.  He  was  practically 
debarred  by  his  polemic  against  the  methods  of  the 
Wages-Fund  Theory  from  attempting  a  direct  solu- 
tion ;  and  he,  therefore,  tried  to  show,  not  that  the 
share  of  labor  was  determinate,  but  that  the  other 
shares  taken  from  the  given  product  were.  Thus, 
by  the  method  of  residues,  the  end  at  which  the 
earlier  theories  had  aimed  is  reached.  The  share  of 
labor  is  determined  and  the  result  can  be  set  forth 
in  a  neat  but  unconvincing  formula  which  has  pro- 
voked Mr.  Gunton's  sarcastic  definition  of  the  small 
boy's  catch,  as  all  the  fish  in  the  sea  minus  those  he 
didn't  catch.  The  value  of  a  residual  theory  de- 
pends on  a  demonstration  of  the  strictness  of  the 
determination  of  the  other  shares ;  and  this  demon- 
stration no  one  can  imagine  that  Professor  Walker 
has  provided.  In  other  chapters  we  find  him  a  (de- 
veloped) Ricardian  of  the  Ricardians  determining 
rent  as  a  residual  share,  and  profits  as  a  residual 
share,  and  interest  as  a  residual  share.  So  when 
we  find  that  wages  also  are  determined  as  a  residual 
share  we  can  hardly  avoid  the  inference  that  we 
are  travelling  in  a  vicious  circle,  not  of  a  very  great 
diameter. 

The  Productivity  Theor}'-  is  held  by  many  writers 
who  do  not  adopt  it  in  its  residual  character.  These 
writers  are  mainly  concerned  with  the  practical  ap- 
plications of  the  theory,  in  the  discussion  of  tariff 
reform,  and  of  the  reduction  of  the  hours  of  labor; 
and  for  their  purposes  the  residual  nature  of  the 
share  of  the  product  which  goes  to  labor  is  probably 


Wages  as  Residual, 


li; 


better  left  in  the  background.  No  useful  purpose, 
at  any  rate,  could  be  served  by  treating  the  share  of 
labor  as  residual. 

Apart  from  the  practical  applications^  it  was  almost 
inevitable  that  an  effort  should  be  made  to  show  that 
wages  was  the  residual  share.  The  final  test  of  a 
theory  of  wages  is  held  to  be  the  dynamic  force  of 
the  determining  principle,  and  directly,  the  produc- 
tivity theory  does  not  provide  such  a  principle.  The 
total  product  of  industry  cannot,  in  any  intelligible 
sense,  provide  a  measure  of  wages  because  the  whole 
cannot  be  a  measure  of  the  part.  That  out  of  a 
larger  product  larger  wages  can  be  paid  and  out  of  a 
smaller  product  lower  wages  is  not  even  a  statement 
of  a  formal  truth  and  may  be  a  statement  that  is 
untrue.  In  the  language  of  formal  logic,  a  defini- 
tion of  wages  must  consist  of  a  statement  of  a  genus 
and  a  difference.  Where  the  genus  is  indisputably 
established  we  still  require  the  statement  of  the 
difference.  The  theory  of  wages  ought  to  state 
the  differentiating  principle  which  separates  the  part 
from  the  whole  of  which  it  is  a  part.  The  Produc- 
tivity Theory,  at  the  first,  and  in  many  expositions 
to  the  very  last,  is  merely  a  statement  of  the  genus, 
and  omits  all  reference  to  the  difference  as  some- 
thing of  comparatively  little  importance.  While 
the  new  theory  was  merely  a  polemic  against  the 
Wages-Fund  Theory,  which  was  essentially  a  theory 
of  the  source  from  which  wages  are  paid,  it  was  suf- 
ficient to  prove  that  wages  were  paid  from  another 
source.     But  the  wages  fund  was  determinate  and 


I'  ■  M 


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T/ie  Bargain  Theory  of  Wages, 


predetermined,  while  the  new  source  is  also  the 
source  from  which  Rent  and  Profits  and  Interest 
are  paid.  The  triumph  of  the  new  theory  brought 
prominently  forward  the  question  of  the  measure  of 
wages.  The  treatment  of  the  subject  at  Professor 
Walker's  hands  indicates  the  progress  towards  the 
recognition  of  this  necessity.  TJie  Wages  Question 
contains  no  hint  of  the  residual  character  of  the  share 
that  goes  to  labor.  Space  and  attention  are  devoted 
to  the  criticism  of  the  Wages-Fund  Theory.  In  his 
Political  Economy,  the  Wages-Fund  Theory,  and  the 
polemic  against  it,  are  relegated  to  what  is  practi- 
cally an  appendix,  while  the  residual  nature  of  the 
laborer's  share  of  the  product  is  fully  set  forth. 

The  method  of  residues  was  employed  to  accom- 
plish indirectly  what  other  theories  had  professed  to 
do  directly;  but  the  final  result,  in  both  cases,  is 
practically  the  same.  The  share  of  the  profit  which 
goes  to  labor  cannot  be  shown  either  directly  or  in- 
directly to  be  a  determined  amount,  and  the  de- 
structive criticism  to  which  each  successive  attempt 
has  been  subjected  leads  us  to  the  conclusion  that 
the  need  for  absolute  determination  in  the  theory  of 
wages  is  illusory.  The  necessity  seems  to  arise 
from  the  fact  that  the  actual  shares  of  the  product 
are  distinctly  determinate;  but  it  does  not  follow 
that  these  shares  are  predetermined  by  action  of  any 
one  principle.  Indeed,  a  review  of  the  phenomena 
of  distribution  shows  us  that  there  is  no  definite  law, 
in  accordance  with  which  just  so  much,  and  no 
more,  is  assigned  to  any  one  of  the  claimants.     The 


The  Contribution  of  Labor  to  Production.      1 19 


shares  are  mutually  determined  and  determining, 
and  the  result  of  this  process  can  be  known  only  ex 
post  facto.  There  is  no  inherent  necessity  that  the 
share  of  labor  should  be  what  it  is ;  and  it  is  v/hat 
it  is  in  virtue  not  only  of  the  strength  of  labor  but 
also  of  the  strength  or  weakness  of  the  rival  claim- 
ants. We  must  get  rid  altogether  of  the  idea  that 
there  is  an  economic  force  which  allots  absolutely 
any  share  of  the  product,  even  the  smallest,  to  any 
of  the  claimants.  There  is  no  absolute  minimum 
and  no  absolute  maximum  for  any  share;  and  the 
amount  at  which  the  share  is  finally  fixed  is  deter- 
mined by  a  combination  of  forces. 

There  is  something  superficially  attractive  in  the 
idea  on  which  the  Productivity  Theory  is  ultimately 
based,  that  each  factor  that  has  been  employed  in 
production  should  obtain  as  a  return  what  it  has 
contributed;  but  the  process  of  determining  what 
each  has  contributed  is  neither  so  easy  nor  so  con- 
clusive in  its  results  as  this  suggestion  makes  it  ap- 
pear. Before  the  prrblcm  of  discovering  the  con- 
tribution made  by  ear  h  factor  can  even  be  approached 
we  must  settle  what  the  nature  of  the  contribution 
made  by  each  factor  is.  Is  it  a  physical  contribution 
or  an  economic  contribution  on  account  of  which  the 
return  is  to  be  made  ?  The  physical  contribution  of 
each  factor  is  no  doubt  determinate,  and  might,  by 
analysis,  be  determined ;  but  it  is  obvious  that  the 
physical  contribution  made  to  the  product  is  neither 
explanation  nor  justification  of  the  actual  remunera- 
tion received,  and  cannot  be  treated  as  such  unless 


!         I 


fill 

k 


'I'll 


n 


w 


120 


T/ic  Bargain  Theory  of  Wages, 


m 


ii 


we  assume  that  the  whole  system  of  society  is  a 
monstrous  iniquity.  There  are  factors  in  the  physi- 
cal process  of  production  which  are  necessary  and 
indispensable  (and,  as  Mill  reminds  us,  there  are  no 
degrees  of  indispensability)  which  yet  receive  abso- 
lutely no  share,  even  the  smallest,  of  the  product. 
The  contribution  to  the  process  of  production  made 
by  what  we  call  the  free  gifts  of  nature  is  as  real  and 
as  distinct  and  determinable  as  the  contribution 
made  by  labor  or  by  capital,  but  no  share  of  the 
product  is  allotted  to  them ;  and  indeed  it  seems 
ridiculous  to  speak  of  a  share  of  the  product  in  this 
connection.  In  the  degree  in  which  any  agent  of 
production  approximates  to  the  character  of  a  free 
gift  of  nature,  however  necessary  it  may  be,  and 
may  continue  to  be,  to  production,  does  its  share  in 
the  product  decline.  It  may  continue  as  important 
as  before,  and  it  is  even  possible,  as  it  comes  more 
to  resemble  a  free  gift  of  nature,  that  its  physical 
contribution  may  increase ;  but  its  reward  will  dimin- 
ish at  least  relatively.  If  the  supply  of  labor  should 
be  increased  enormously  we  might  find  that  many 
operations,  previously  performed  by  machinery, 
could  be  more  profitably  performed  by  hand  (the 
converse  case  is  a  matter  of  common  industrial  ex- 
perience). The  physical  contribution  of  labor  to 
the  product  would  thus  be  augmented;  but  while 
the  total  reward  of  labor  might  be  increased  the 
marginal  reward  would  certainly  decrease.  The 
accumulation  of  capital,  again,  might  be  so  rapid 
«ind  so  enormous  that  the  rate  of  interest  might  fall 


The  Physical  Contribution, 


121 


\ 


almost  to  zero ;  but  the  application  of  capital  in  pro- 
duction would  increase  rather  than  diminish.  The 
skill  and  general  mental  qualities  necessary  for  suc- 
cessful management  might,  by  the  spread  of  educa- 
tion, become  very  common ;  but  managerr  ^nt  would 
be  no  less  indispensable  and  might  even  be  employed 
to  a  greater  extent  in  production  than  it  is  at  pres- 
ent ;  yet  the  wages  of  superintendence  would  fall 
off  as  they  have  done,  according  to  Mrs.  Sidney 
Webb,  in  the  textile  factories  of  Lancashire. 
Thus,  even  supposing  it  was  an  easier  matter  than 
it  is  to  determine  the  physical  contribution  made  by 
each  agent  to  the  product, we  are  evidently  not  very 
far  advanced  on  our  way  to  determine,  according  to 
this  principle  of  justice  (which  makes  all  the  present 
organization  of  society  a  monstrous  injustice)  what 
share  of  the  product  should  be  allotted  to  each 
agent. 

The  product  of  industry,  moreover,  is  not  the  re- 
sult of  the  several  factors,  but  of  the  combination 
and  co-operation  of  the  factors.  Outside  of  the 
combination,  and  apart  from  the  co-operation,  of 
the  various  factors,  the  product  of  industry  would 
be  very  small.  The  factors  working  separately,  and 
in  isolation  (and  separately  and  in  isolation  some 
of  them  could  not  work  at  all),  would  only  be  able 
to  turn  out  a  product  beggarly  in  comparison  with 
the  share  of  the  product  they  actually  receive  from 
the  results  of  co-operation.  Capital  is,  at  the  best, 
only  a  passive  instrument  of  production:  without 
labor  and  opportunity  it  can  produce  nothing;  and 


I       !) 


I 


¥ 


I  I 


122 


T/w  Bargain  Theory  of  Wages, 


W 


Pi 


a 


ii; 


the  socialists  clamor,  in  virtue  of  this  principle  of 
justice,  that  it  should  receive  nothing.  The  earth 
might  yield  her  increase  without  labor  and  without 
capital,  but  the  amount  would  be  very  small  and  the 
quality  would  soon  deteriorate.  Labor,  the  pe- 
culiarly active  agent  in  production,  would  indeed 
produce  something;  but  the  progress  of  industry 
has  been  due  to  an  increasing  co-operation  of  labor 
and  capital,  and  other  agents  of  production;  and 
the  greater  the  co-operation  the  larger  the  product. 
We  cannot,  therefore,  find  the  contribution  of  any 
given  agent  by  comparing  the  amount  of  the  product 
when  it  is  present  and  the  amount  of  the  product 
when  it  is  absent  and  calling  the  difference  between 
them  the  contribution  of  the  given  factor.  By  this 
method  we  should  obtain  some  rather  astonishing 
results.  If  labor,  in  the  absence  of  capital,  could 
produce  only  one  half,  or  one  third,  of  what  is  pro- 
duced to-day  when  labor  and  capital  co-operate, 
fifty  per  cent,  or  sixty-six  per  cent,  would,  on  this 
method,  be  assignable  to  capital.  But,  on  the  other 
hand,  if  labor  were  absent  capital  could  produce 
nothing  whatsoever,  and  consequently  one  hundred 
per  cent,  of  the  present  product  belongs  to  labor. 
Then,  if  we  were  to  reverse  the  process,  and  add  to- 
gether the  several  shares  assigned  to  the  various 
factors,  after  this  method  of  subtraction  had  been 
carried  out,  we  might  find,  as  we  pleased,  either  that 
the  product  had  been  assigned  many  times  over,  or 
that  the  larger  part  of  it  had  not  been  assigned  at 
all.     It  is  sufficiently  obvious  that  we  cannot  deter- 


The  Rcouoviic  Contribution. 


123 


mine  the  contribution  of  any  factor  to  the  product 
by  this  indirect  method  of  subtraction. "**■ 

TIic  sum  of  the  wliole  matter  is  that  we  ought  not 
to  transfer  to  distribution  the  ideas  which  are  neces- 
sary in  production.  The  mere  fact  that  an  agent  is 
employed  in  the  processes  of  production  affords  no 
reason  why  a  part  of  the  product  should  be  assigned 
to  it,  as  the  case  of  the  free  gifts  of  nature  is  suflfi- 
cient  to  prove.  An  analogy  will  make  the  point 
clear.  Physical  laws  and  physical  conditions  must 
be  present  before  a  man  can  be  pushed  over  a  preci- 
pice; but  we  have  no  blame  for  the  law  of  gravita- 
tion, or  for  the  geological  forces  which  shaped  the 
formations  of  the  district.  We  do  not  hold  them 
responsible,  but  reserve  our  blame  for  the  human 
agent  who  may,  to  the  sum  total  of  physical  causes 
and  conditions,  have  made  the  smallest  physical 
contribution.  As  in  the  moral  distribution  of  re- 
sponsibility and  blame  so  in  the  economic  distribu- 
tion of  the  product.  Mere  physical  contribution  to 
the  result  is  a  matter  of  no  importance  whatever. 
In  the  distribution  of  the  product  no  share  at  all 
will  be  assigned  unless  the  factor  is,  so  to  speak, 
able  to  make  a  claim  and  able  to  make  its  claim 
good  in  some  way  or  other.  The  claim  must  be 
supported  by  a  threat,  and  the  power  to  carry  out 
the  threat  is  the  sole  measure  of  the  share  which  the 


'".    1! 


*  This  method  has  been  unhesitatingly  employed,  with  results  most 
irritating  to  the  friends  and  champions  of  labor,  by  Mr.  Malloch 
throughout  his  brilliant  essay.  Labor  and  the  Popular  Welfare^  and 
the  futility  of  the  method  is  the  underlying  fallacy  of  the  book. 


pw- 


124 


The  Bargain  Theory  of  Wages. 


m 


lilii; 


if!fl 


y.!. 


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(i, 

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Hi  ' 


1.1 


! 

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1 

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1ft 

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1 
1 

i 

other  claimants  will  allow  to  pass  into  the  possession 
of  the  first  claimant.  The  threat  which  can  be  used 
with  effect  is  to  withdraw  the  agent  from  the  co- 
operation, and  if  the  agent  were  a  unit  the  power  to 
make  the  threat  good  would  cause  the  transfer  to 
that  agent  of  the  difference  between  the  product 
with  its  co-operation  and  the  product  without  its 
help.  But  no  agent  is  a  unit  and,  although  the 
agent,  as  a  whole,  is  indispensable,  the  whole  may 
be  so  great  that  no  particular  unit  of  that  agent  can, 
with  any  hope,  claim  to  be  indispensable.  If  the 
agent  is  available  in  such  quantity  that  there  need  be 
no  shadow  of  fear  that  the  supply  of  it  will  not  be 
sufficient  to  meet  the  demand,  or,  in  other  words, 
if  the  supply  of  the  agent  is  so  great  that  the  other 
agents  need  have  no  fear  of  being  deprived  of  its  co- 
operation, no  attention  will  be  paid  to  the  claim. 
The  free  gifts  of  nature,  precisely  on  this  account, 
receive  no  share  of  the  profit.  When  there  is  any 
means  of  limiting  them,  they  are  appropriated  and 
their  claims  are  enforced  by  the  threat  to  withdraw 
the  supply  of  that  agent  from  co-operation  with  the 
other  agents. 

There  is  no  right  inherent  in  any  agc;it  'Vi.v  Its 
claims  should  be  allowed :  its  claims  are  admitted 
by  the  rival  claimants  only  because  they  are  forced 
to  admit  them.  Should  they  be  able  to  make  better 
terms  for  themselves,  by  encouraging,  so  to  speak, 
some  substitute  for  a  particular  agent  of  production, 
that  encouragement  will  be  given.  In  the  main,  it 
is  true  that  the  contribution  rendered  by  the  agent 


The  Law  of  Substitution, 


125 


ilHi 


can  be  rendered  by  that  agent  alone ;  but  between 
labor  and  capital  there  is  some  possibility  of  substi- 
tution. When  the  wages  of  labor  are  high  there  is 
a  decided  impetus,  as,  for  instance,  in  the  United 
States,  given  to  the  introduction  of  labor-saving 
machinery.  It  is  cheaper  to  employ  machinery 
than  labor  because  the  claim  made  on  behalf  of  the 
capital  embodied  in  it  is  lower  than  the  claims  made 
on  behalf  of  the  labor  it  tends  to  displace.  The 
claims  of  labor  will  therefore  be  disregarded  to  the 
extent  to  which  they  are  in  excess  of  the  claims  of  the 
capital  which  may  replace  it,  and  the  value  of  labor 
will  be  determined,  not  by  the  claims  which  are 
made  by  and  allowed  to  the  marginal  laborer,  but 
by  the  claims  which  are  made  by  and  allowed  to  the 
marginal  substitute  for  labor.  This  process  of  sub- 
stitution has  not  resulted  in  reducing  the  claims 
allowed  to  labor,  though  it  has  possibly  checked 
their  advance,  because  in  the  long  run,  machinery 
has  not  over  the  whole  field  of  labor  caused  a  dim- 
inution of  the  demand  for  labor. 

The  claim  which  may  be  allowed  to  any  agent  of 
production  may  be  large,  not  because  it  has  excep- 
tional power  to  enforce  its  threat  to  "  strike,"  but 
because  the  power  which  the  other  agents  have  to 
enforce  their  claims  is  relatively  weaker.  In  the 
contest,  or  competition,  for  the  product  a  larger 
share  may  go  to  capital  because  labor  is  disorganized 
and  to  labor  because  improved  communication  has 
made  new  land  and  natural  resources  available. 
When  the  margin  of  the  profitable  application  of 


III 


-\ 


f 


Pi 
I 

t  H 

! 

'i 

I 


i 

ill 


iiii 


II'  I  4 


iil 


m 


126 


T/ie  Bargain  Theory  of  Wages. 


any  agent  extends,  all  the  agents  or  claimants  will 
gain,  but  the  agent  whose  conditions  have  changed 
will  gain  the  least  by  the  change.  Its  relative  re- 
ward will  decrease  and  its  absolute  reward  will  not 
increase  in  the  same  proportion  as  the  absolute  re- 
ward of  the  other  agents;  and  the  reason  is  that 
owing  to  the  increase  of  the  supply  the  power  of 
making  its  threat  good  has  been  impaired. 

The  definite  shares  of  the  product  which  are 
allotted  to  the  various  claimants  are  not  determined 
by  the  inherent  right  of  one,  or  other,  of  them  to  a 
precise  amount,  but  by  the  comparative  strength  of 
the  various  claimants.  The  shares  are,  therefore, 
mutually  determined  and  determining;  and  we  may 
therefore  give  up  the  search  after  some  definite 
principle,  or  principles,  which,  directly,  or  indirectly 
by  the  method  of  residues,  would  predetermine  the 
share  of  any  one  of  them ;  for  the  position  of  any 
claimant  may  improve,  or  become  worse,  without 
any  alteration  in  itself,  merely  by  an  alteration  in 
the  relative  strength  of  another  claimant. 


•^(     ill 

H      ■(  I 
5-    !■  I 


CHAPTER  IV. 


THE  BARGAIN  THEORY  OF  WAGES. 


THE  mistaken  quest  for  a  principle  which,  singly, 
shall  have  determining  powjr  has  generally 
led  to  an  extreme  and  one-sided  statement  of  the 
principle.  It  has  been  stretched  to  explain  all  the 
phenomena  of  wages ;  and  it  has  been  an  easy  task 
for  the  critics  to  show  that  it  is  not  sufficient  to 
cover  the  whole  ground.  Many  facts  have  to  be 
accommodated  to  the  theory  and  others  left  com- 
pletely unexplained  and  unexplainable.  As  long  as 
the  critic  confines  himself  to  his  criticism,  his  course 
is  clear  and  his  argument  unanswerable;  but  when, 
in  the  triumph  of  his  destructive  criticism,  he  be- 
comes confident  enough  to  state  his  own  theory,  the 
tables  are  turned,  and  the  new,  or  revived,  theory  is 
easily  shown  to  be  open,  if  not  to  similar,  yet  to 
equally  weighty  objections.  No  theory  seems  strong 
enough  to  meet  the  objections  which  are  raised 
against  it;  because  no  theory  is  adequate  for  the 
explanation  of  all  the  facts.  The  reason  for  this 
universal  breakdown  is  that  the  criticism  is,  in  the 

127 


■  I 
t 

i! ' 

I 


■l 


rw 


Si 


m'i 

li 

.1 

r 

I- 

H      ■'! 

liJI 


!  ! 


i 


id' 


H 


It 
I 


128 


T/ie  Bargai7t  Theory  of  Wages. 


main,  merely  destructive.  A  principle  is  shown  to 
be  inadequate  to  account  for  the  determination  of 
wages  under  certain  circumstances  and  is,  there- 
fore, promptly  rejected  m  toto ;  and  a  new  theory  is 
put  forward  to  explain  what  the  rejected  theory 
had  not  explained.  But  the  new  theory  is  generally 
found  to  be  inadequate  to  explain  what  the  old  had 
explained. 

The  consequences  of  the  doctrine  of  evolution 
have  not  yet,  in  spite  of  the  adoption  of  its  phrase- 
ology, been  fully  realized  by  economists,  or  we 
should  have  less  of  this  purely  destructive  criticism 
and  hasty  and  contradictory  construction.  No 
theory  which  has  obtained  the  approval  of  a  large 
number  of  investigators  of  industrial  phenomena, 
and  kept  it  for  any  length  of  time,  can  be  totally 
devoid  of  foundation.  It  may  not  express  the 
whole  truth,  but  it  must  present  some  sort  of  expla- 
nation of  large  groups  of  facts,  and  no  polemical 
fervor  can  justify  the  total  rejection  of  a  theory 
which  presents  some  part  of  the  truth  of  the  indus- 
trial situation.  This  destructive  criticism  has  been 
inspired  by  the  notion  that  the  principle  must  ex- 
plain all  the  facts  or  none  at  all ;  but  when  we  get 
rid  of  the  idea  of  the,  necessarily,  absolute  deter- 
mining power  of  a  single  principle,  the  way  is  open 
to  us  to  recognize  the  measure  of  truth  and  expla- 
nation contained  in  each  of  the  three  principal 
theories  that  have  been  advanced,  and  to  construct 
a  theory  which  shall  give  due  place  to  the  element 
of  truth  which  each  has  been  shown  to  contain. 


)  •;■, 


The  Defects  of  Wage  Theories, 


129 


The  errors  of  the  theories,  considered  in  the  first 
three  chapters,  have  arisen  from  making  a  solution 
of  a  part  qf  the  problem  do  duty  for  the  solution  of 
the  whole';  and  the  remedy  consists  not  in  indis- 
criminate criticism  and  rejection,  but  in  giving  each 
theory  its  proper  place.  The  subsistence  theory  is, 
in  the  main,  a  theory  of  the  supply  price  of  labor — in 
its  earlier  and  later  forms  a  theory  of  the  necessary 
supply  price  determined  by  the  cost  of  production 
(variously  interpreted) — in  its  usual  modern  form, 
almost,  it  might  be  said,  a  theory  of  market-supply 
price  or,  at  any  rate,  of  the  variations  of  the  market- 
supply  price  above  the  necessary  supply  price.  It 
errs,  on  the  one  hand,  as  a  cost  of  production  theory 
is  bound  to  err,  in  neglecting  the  question  of  a  pos- 
sible demand  price,  and,  on  the  other  hand,  in  inter- 
preting the  supply  price  of  labor  too  narrowly.  It 
assumes  throughout  that  labor  is  a  commodity  with 
pretty  much  the  same  characteristics  as  other  com- 
modities which  are  bought  and  sold ;  and,  therefore, 
except  in  the  vaguer  form  of  the  principle  as  the 
standard  of  comfort,  it  is  forced  to  neglect  the  fact 
that  the  supply  price  of  labor  is  not  determined  ex- 
traneously)  but  is  largely  self-determined.  The  sup- 
ply price  of  labor  is  not  determin'^d,  solely,  by  the 
amount  of  thie  necessaries,  comforts,  and  luxuries 
which  are  necessary,  from  physiological  causes  or 
from  custom  and  habit,  to  support  the  laborer. 
These,  as  we  shall  see  later,  form  the  principal  ele- 
ment in  the  supply  price,  but  they  do  not  constitute 
the  whole  of  it ;  nor  is  any  sufificient  reason  suggested 


W 


130 


The  Bargain  Theory  of  Wages. 


n 


\ 


llij 


(it 

1,  f 


I- 

1*    ' 

1     ■        ■'    '1 

m. ' 

ill  the  theory  why  they  should  form  even  part.  The 
supply  price  of  labor  is  not  a  price  determined  by 
forces  over  which  the  laborer  has  not  full  control : 
it  is  simply  an  estimate  which  the  laborer  forms  of 
what  he  (not  necessarily  his   work)    is   worth ;  and 

.  many  elements  enter  into  it,  besides  food  and  cloth- 
ing and  shelter  and  even  fccreation.  The  supply  price 
is  not  a  minimum  below  which  wages  cannot  fall, 
or  a  maximum  beyond  which  they  cannot  rise.     It  is 

.  true  that  wages  cannot  easily  fall  below  the  standard 
of  subsistence,  interpreted  in  the  strictest  and  nar- 
rowest physiological  sense,  but,  owing  to  the  prog- 
ress of  the  working  classes,  this  form  of  the  theory 
has  been  abandoned.  In  any  other  sense,  whether 
industrial  or  optimistic,  the  standard  of  subsistence 
cannot  be  regarded  as  an  absolute  minimum.  The 
degradation  of  labor  is  a  melancholy  fact  of  too  fre 
quent  occurrence  in  industrial  history  to  permit  i 
to  accept  the  standard  of  subsistence  as  an  insur- 
mountable barrier.  A  man  can  live  on  less,  and  he 
may  be  forced  by  the  fluctuation  of  industry  for  the 
time  being  to  accept  less,  than  will  secure  for  him 
that  amount  .of  the  necessaries,  comforts,  and 
luxuries  of  life  which  he  naturally  thinks,  or  has 
com£  to  think,  as  his  due.  The  supply  price  of 
labor  is  simply  an  estimate  by  which  the  laborer  is 
prepared  to  stand  and  for  which  he  is,  if  need  be, 
prepared  to  fight.  But  the  greatest  omission  in  the 
theory  is  the  neglect  of  the  question  of  the  demand 
price  of  labor.     If  we  could  accept  without  qualifi- 

.  cation  the  cost  of  production  theory  of  value,  the 


,' 


Demand  Price  and  Supply  Price. 


131 


omission  would  not  be  serious;  for,  according  to 
this  theory,  fluctuations  apart,  all  values  are  deter- 
mined by  supply;  but  "  cost  of  production  "  was 
shorn  of  much  of  its  significance  by  Mill,  and  rele- 
gated to  the  background,  where,  unless  when  brought 
forward  to  be  definitely  repudiated,  it  has  remained. 
If  labor  is  a  commodity,  it  has  not  only  a  sypply 
price  but  a  demand  price;  and  the  modern  theory  of 
wages  practically  anticipated  those  theories  of  value 
which  find  that  value  is  determined  by  utility, 
in  considering  only  the  question  of  the  demand 
price. 

In  the  standard  of  subsistence  theory,  as  well  as 
in  the  productivity  of  labor  theory,  too  much  stress 
is  laid  on  the  alleged  fact  of  concomitant  variation. 
This  concomitant  variation  of  wages  with  the  cost 
of  living,  on  the  one  hand,  and  with  the  efficiency 
of  labor  on  the  other,  we  found  to  be  neither  so  in- 
variable nor  so  close  as  was  alleged ;  and  yet  to  be 
close  enough,  in  both  instances,  to  justify  both  the 
theories  as  approximate  explanations  of  the  facts. 
In  the  language  of  formal  logic,  it  might  be  safe  to 
conclude  that  the  two  principles  were  in  effect  not 
so  much  contrary  as  subcontrary  propositions.  At 
any  rate,  both  of  them  are  in  a  measure  true  if 
neither  is  pushed  to  an  extreme.  Unfortunately 
the  exponents  of  both  theories  have  pushed  them  to 
extremes  and,  in  asserting  the  truth  of  their  own 
principle,  have  imagined  that  they  were  proving  the 
falsity  of  every  other.  But  a  theory  of  the  supply 
price  of  labor  need  not  be  set  in  antagonism  over 


fi 


U 


II  i 


132 


The  B  I  Theory  of  Wages. 


I  If!  I 


I 


Ml 


1. 1 , 


m 


against  a  theory  of  a  demand  price.  Both  may  be 
true  and  both  are  necessary  for  a  complete  state- 
ment. The  productivity  theory  amounts  to  an  un- 
quahfied  assertion  of  the  demand  price  of  labor  as 
the  determinant  of  wages.  It  ignores,  almost  com- 
pletely, the  supply  of  labor  because,  optimistically, 
it  considers  the  question  of  a  supply  price  irrelevant 
and  unnecessary.  The  demand  price  is  necessarily 
higher  than  the  supply  price ;  and  the  motive  which 
the  employer  has  in  paying  wages,  and  the  beneficent 
results  for  the  laborer  of  the  competition  of  master 
with  master,  render  the  consideration  of  a  possible 
supply  price  unnecessary.  The  demand  price  is 
fixed  by  the  estimate  which  the  employer  forms  of 
the  efficiency  of  labor,  and,  as  the  demand  price  is 
higher  than  any  possible  supply  price,  the  latter  is 
ignored,  except  in  so  far  as  the  supply  price  of  labor, 
or  the  most  important  element  in  the  supply  price, 
food  and  clothing  and  shelter,  affect  the  efficiency 
of  the  laborer.  It  is  undoubtedly  true  that  in  pay- 
ing wages  the  employer  is  influenced  by  his  estimate 
of  what  the  laborer  is  worth  to  him,  and  this  estimate 
constitutes  the  demand  price  of  labor.  In  the  case 
of  labor,  as  in  the  case  of  all  other  commodities,  the 
demand  price  is  generally  higher  than  the  supply 
price.  This  arises  not,  as  in  ordinary  exchange, 
from  the  low  marginal  utility  of  that  with  which  the 
seller  parts,  but  from  the  necessities  of  the  laborer. 
But,  although  the  demand  price  is  generally  the 
higher,  or,  to  be  more  accurate,  although  the  demand 
estimate  is  generally  higher^than  the  supply  esti^ 


\ 


I! 


The  Demand  Price  not  Fixed. 


133 


mate,  it  does  not  follow  that  the  supply  price  is 
a  negligible  quantity.  The  demand  price  is  not 
fixed  and  absolute.  It  certainly,  even  under  the 
beneficent  influence  of  the  competition  of  master 
with  master,  cannot  be  regarded  as  a  minimum. 
The  motive  for  paying  wages  is  the  hope  of  a  sur- 
plus; and  the  lower  wages  can  be  fixed  compatible 
with  efficiency  the  larger  the  surplus  the  employer 
may  hope  to  realize ;  and  there  is,  therefore,  a  rea- 
son why  the  employer  should  seek  to  pay  less  than 
he  thinks  the  labor  is  worth.  The  supply  price, 
however,  is  a  practical  limit  to  his  powers  of  re- 
ducing wages.  To  reduce  wages  down  to  the 
supply  price  and  to  attempt  to  lower  them  further, 
will  destroy  the  laborer's  hopefulness  and  irritate 
him  into  a  wild  sense  of  injustice.  If  the  supply 
price  is  high  the  enlightened  employer's  efforts  to 
reduce  wages  will  soon  be  checked  by  the  decline  in 
the  laborer's  efficiency,  which  depends  so  much  on 
mental  and  moral  qualities :  if  the  supply  price  be 
low,  the  actual  price  of  labor  may  be  low,  not 
merely  because  the  laborer  is  less  efficient,  which  he 
probably  is,  but  because  the  employer  may  hope  to 
realize  a  larger  surplus  without  killing  the  goose 
that  lays  the  golden  eggs  for  him.  In  either  case,, 
the  supply  price  of  labor  is  of  importance  because  it 
is  the  employer's  interest  to  pay  as  much  less  than 
the  labor  is  worth  to  him  as  the  laborer  will,  readily 
and  without  irritation,  accept. 

The  Wages-Fund  Theory,  in  a  measure,  is  a  rec- 
onciliation of  these  two  theories ;  but  the  reconcili- 


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134  T/if  Bargixin  Theory  of  W 


'ages. 


ation  is  premature.  It  presents  a  theory  of  the 
demand  and  the  supply  of  hibor,  but  treats  both  de- 
mand and  sui)ply  from  an  impersonal  and  quasi- 
objective  standpoint.  Demand  and  supply  are  fixed 
by  what  are,  so  far  as  the  theory  of  wages  is  con- 
cerned, extraneous  forces.  Su[)ply  is  not  relative 
to  price,  but  independent  of  price,  and  the  causes  of 
the  determination  of  the  supply  are  considered  out- 
side the  theory.  The  causes  which  determine  the 
demand  are  not  so  cavalierly  dismissed  ;  but  the  de- 
mand is  regarded  as  a  quantity  and  not  as  relative 
to  a  price.  The  fundamental  error  of  the  Wages- 
Fund  Theory  consists  in  treating  both  supply  and 
demand  as  fixed  quantities.  The  laborer  must  work, 
therefore  the  supply  of  labor  is  absolute.  The  em- 
ployer, out  of  his  own  intention,  fixes  the  Wages 
Fund  which  must  be  expended,  and,  therefore,  the 
law  of  wages  is  the  proportion  between  demand  and 
supply.  But  the  laborer,  though  he  must  work,  is 
not  merely  passive,  and  the  employer,  like  other 
men,  forms  some  estimate  of  the  worth  of  what  he 
purchases;  and,  although  we  may  speak  of  a  propor- 
tion between  fixed  and  rigid  quantities,  we  cannot 
speak  of  the  law  of  wages  bcuig  the  proportion  be- 
tween the  demand  and  supply  of  labor.  Mill's 
emendation  "  equation  "  is  better,  but  all  analogies, 
even  mathematical  analogies,  are  misleading.  The 
supply  of  labor  cannot  be  considered  apart  from  the 
fact  that  labor  and  the  laborer  are  inseparable :  ^the 
demand  for  labor  arises  from  the  motive  which  the 

z.,  the  realization 


iploy( 


payi 


wages, 


TJic  Form  of  the  Couiplctcd  Theory.  135 


I 


of  a  surplus  product,  and  is  not  independent  of  his 
estimate  of  what  the  labor  wliich  he  purchases  is 
worth.  Waf^cs  are  the  result  of  an  equation,  if  we 
must  use  Mill's  term,  of  the  supply  estimate  and 
the  demand  estimate,  and,  if  the  equation  is  not 
established  at  first,  the  solution  of  the  problem  is 
reached,  as  it  is  reached  in  all  other  buying  and 
selling,  by  bargaining. 

The  Wages-Fund  Theory  is,  in  form  at  least,  the 
most  adequate  attempt  to  resolv^e  the  wages  ques- 
tion. It  recognizes  that  there  are  two  sides  to  the 
equation  and  devotes  considerable  attention  to  the 
force  which  establishes'  the  equation.  This  force  it 
calls  competition.  Thus  it  presents  the  form  of  a 
complete  theory;  and  the  object  of  the  remainder 
of  this  chapter  is  to  fit  the  material  of  the  Subsis- 
tence Theory  and  of  the  Productivity  Theory  to  the 
form  of  the  Wages- Fund  Theory. 

In  the  last  chapter,  we  saw  in  what  sense  the 
statement  that  labor  \?>  a  commodity  is  to  be  under- 
stood. Even  in  the  most  advanced  industrial  stages, . 
the  buying  and  selling  of  labor  continues  in  many 
respects  to  exhibit  the  characteristics  of  primitive 
exchange.  The  difficulty  of  securing  that  double 
coincidence  which  is  necessary  for  barter  does  not 
appear,  because  labor  is  in  steady  demand ;  and  the 
labor  market,  though  not  organized  like  the  money 
market,  is  not  in  a  state  of  chaos.  It  is  not  because 
labor  is  less  mobile  than  other  goods  that  it  retains 
the  characteristics  of  primitive  exchange,  but  because 
two  separate  estimates  of  utility  enter  into  the  de- 


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136 


7%^  Bargain  Theory  of  Wages. 


termination  of  the  ratio  of  exchange.  In  the  case 
of  direct  and  primitive  exchange  of  goods  for  goods, 
each  of  the  exchangers  has  his  own  estimate  both  of 
what  he  wishes  to  obtain  and  of  what  he  parts  with 
in  order  to  obtain  it.  The  primitive  exchanger  is 
supposed  to  compare  the  rharginal  utility  of  the  two 
commodities  which  are  to  be  exchanged,  and  the 
exchange  takes  place  only  when  the  bread  or  the 
water  or  the  diamonds  with  which  one  parts  has  a 
lower  marginal  utility  than  the  commodity  which 
one  gains.  But  with  the  organization  of  industry 
and  the  extended  application  of  the  principle  of  the 
division  of  labor,  the  estimate  which  the  exchanger 
places  on  the  commodity  which  he  offers  in  exchange 
becomes  of  less  importance.  He  has  it  in  superfluity 
and,  even  when  he  could  use  in  his  own  consump- 
tion the  commodity  he  produces,  its  marginal  utility 
must  be  almost  as  low  as  zero.  The  producer  pro- 
duces only  to  exchange  and,  in  the  actual  exchange, 
therefore,  looks  almost  exclusively  to  the  utilities 
of  the  articles  which  he  seeks  to  obtain.  He  may 
withhold  part  of  his  output;  but  his  object  in  so 
doing  is  to  obtain  a  larger  amount  of  the  commodity 
he  desires.  His  motive  is  never  the  affection  he 
has  for  the  fruits  of  his  own  labor  or  the  direct  utili- 
ties which  the  commodities  can  afford  him.  The 
seller's  personal  estimate  has  little  influence  in  deter- 
mining whether  the  commodity  is  sold  or  not.  /^is 
minimum  price  is  determined  solely  by  the  cosi 
of  production — what  determines  the  cost  of  pro- 
duction is  not  our  problem — and  his  objection  to 


Labor  a  Personal  Commodity, 


137 


parting  with  the  commodity  below  cost  docs  not  lie 
in  the  fact  that  he  can  use  it  to  better  advantage — 
that,  even  in  the  having  it,  there  is  more  utility 
than  can  be  obtained  by  parting  with  it  at  a  sacri- 
fice. This  is  true,  notwithstanding  the  fact  that, 
directly  or  indirectly,  the  commodity  is  the  product 
of  his  own  labor  or  sacrifice ;  not  only  because  under 
modern  conditions  this  sacrifice  of  comfort  is  spread 
out  over  a  large  area  owing  to  the  division  of  labor, 
but  also  because  it  is  a  thing  of  the  past.  The 
manufacturer  who  sells  the  output  of  his  mills  docs 
indeed  sell  the  results  of  his  exertions  and  his  absti- 
nence; but,  nevertheless,  he  will  not  withhold  a 
single  hank  of  yarn  or  a  single  yard  of  cloth  from 
the  market  because  he  has  exerted  his  powers  of 
mind  and  body,  or  sacrificed  his  immediate  comfort, 
in  fashioning  them.  Rather  will  reflection  on  these 
past  exertions  make  him  the  more  willing  to  sell,  that 
they  may  not  go  unrewarded.  The  exertion  is  over 
and  past;  and,  though  future  exertions  may  be 
limited  because  the  reward  for  past  exertions  is  con- 
sidered inadequate,  yet  past  exertion  has  little  to 
do  with  the  determination  of  present  price.  But 
the  less  remote  the  exertion  and  the  less  the  extent 
to  which  the  division  of  labor  is  carried  in  produc- 
tion, the  more  will  the  seller's  sense  of  the  exertions 
he  has  put  forth  and  the  sacrifices  he  has  undergone, 
affect  his  readiness  to  sell  at  any  price.  An  artist, 
in  so  far  as  he  is  animated  by  the  commercial  motive, 
is  more  likely,  other  things  being  the  same,  to  hold 
his  picture  for  an  adequate  price  than  the  weaver 


. 


If" 


\'l\ 


m 


m 


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'  ■              '■1 

m    W 

ii  i.' 


138 


T/w  Barium  TJicory  of  Wages. 


his  cloth.  The  artist  has  completed  the  whole 
operation  and  has  in  his  hands  at  one  time  the  com- 
pleted result  of  his  exertions.  The  work  that  he 
has  fashioned  is  more  to  him  thr  1  the  yarn  is  to  the 
master  spinner;  thouj^h  the  pamter,  too,  will  part 
with  the  picture  at  what  he  considers  an  inade- 
quate price  rather  than  have  it  left  on  his  hands. 
The  laborer,  however,  is  still  nearer  to  his  labor 
which  he  sells  than  the  artist  is  to  his  picture.  He 
has  but  little  interest  in  the  product  which  he  is 
engaged  in  making.  He  has  already  contracted 
himself  out  of  all  claim  on  it.  What  he  parts  with 
is  really  not  the  fruits  of  past  exertion,  but  the  right 
to  use  his  labor.  All  the  time  that  the  exchange  is 
being  effected,  he  is  continuously  conscious  of  his 
personal  interest  in  what  he  sells.  Since  all  labor 
involves  disutility,  we  can  never  speak  of  the  laborer 
parting  with  that  which  has  a  low  marginal  utility 
to  obtain  that  which  has  a  high  marginal  utility. 
Directly  the  power  to  labor  may  be  of  little  use  to 
the  laborer,  but  the  disutility  of  labor  remains  great. 
Were  the  laborer  able  to  take  a  purely  objective  view 
of  what  he  sells,  the  price  of  labor  might  be  deter- 
mined as  the  price  of  all  other  commodities  is,  almost 
entirely  from  the  side  of  demand;  but  the  memory, 
or  the  anticipation,  of  the  disutilities  of  exertion  is 
too  strong  to  permit  him  to  take  an  impersonal 
view  and,  consequently,  he  will  insist  more  strongly 
than  either  the  manufacturer,  or  the  artist,  on  ob- 
taining an  equivalent  for  the  inconveniences  he  has 
incurred  or  is  likely  to  incur.     All  that  a  man  hath 


Labor  a  Unique  Coiiuiiodity. 


139 


will  he  give  for  his  life,  and  the  laborer's  necessities 
may  be  so  great  that  he  estimates  the  disutilities  of 
labor  as  nothing  compared  with  the  utilities  he  de- 
sires; yet,  however  highly  he  estimates  the  utilities 
of  the  reward  and  however  indifferent  he  may  there- 
fore be  to  the  disutilities  of  labor,  he  will  not  work 
unless  the  utilities  are,  at  least,  an  equivalent  in 
satisfaction  to  the  disutilities  incurred. 

Labor,  on  this  account,  remains  a  thing  apart.  It 
has  inevitably,  perhaps  fortunately,  but  certainly 
inevitably,  lagged  behind  in  the  process  of  the 
simplification  of  exchange,  which  has  gone  so  far  in 
the  case  of  other  commodities  as  practically  to  elimi- 
nate the  seller's  estimate  from  the  barjjain.  From 
the  buyer's  point  of  view  labor  has  not  lagged  much 
behind.  In  primitive  exchange  the  decision  to  buy 
or  to  sell  depends  on  whether  the  indirect  utilities, 
v/hat  by  the  Austrian  economists  is  called  the  sub- 
jective exchange  value,  exceed  the  direct  utilities  or 
not.  Under  modern  industrial  conditions,  the 
direct  utilities  are  of  comparatively  little  importance 
compared  with  the  indirect.  The  buyer  of  labor 
must  postpone  the  consumption  of  some  portion  of 
that  share  of  the  real  income  of  society  which  has 
fallen  to  him  ;  but  since  he  buys  labor,  not  for  im- 
mediate gratification,  but  to  produce  and  to  make 
money,  the  utility  which  he  sacrifices  does  not 
weigh  much  with  him.  He  fixes  his  attention  far 
more  on  the  commodities  he  seeks  to  obtain  by  help 
of  the  labor  he  hires  than  on  the  utilities  he  hands 
over  to  the  laborer  in  exchange ;  although  the  direct 


I  ill 


i 


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140 


The  Bargain  Theory  of  Wages. 


% 


jijl 
I: 


H 


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I 


If 


li' 


utilities  are  not  without  influence  on  the  estimate 
he  forms  of  what  the  labor  is  worth  to  him. 

The  price  of  labor  is  determined  somewhere  be- 
tween two  estimates  placed  upon  it — the  estimate 
of  the  employer  and  the  estimate  of  the  laborer. 
The  estimate  of  the  laborer  is  the  resultant  of  two 
factors — one  positive  and  one  negative- -the  utility 
of  the  reward  and  the  disutility  of  the  labor;  and 
the  estimate  of  the  employer  is  on  the  whole  de- 
pendent on  the  indirect  utilities  afforded  by  what  he 
purchases,  or  rather  by  the  discounted  value  of  the 
product  created  by  the  laborer's  exertions.  Should 
the  laborer  place  too  high  an  estimate  upon  what 
he  offers  to  sell,  or  the  employer  too  low  an  estimate 
on  what  he  wishes  to  buy,  no  exchange  will  be 
effected;  but,  in  general,  the  necessities  of  the 
laborer  and  the  motives  of  the  employer  prevent 
any  such  difficulty  from  arising.  The  pressure  of 
the  laborer's  necessities  is  such  that  the  reward 
which  the  employer  offers  is  generally  sufficient  to 
cover  the  disutility  of  labor. 

Between  these  two  estimates  the  value  of  labor  is 
determined  by  the  forces  by  which  all  exchanges  are 
effected.  These  two  estimates  are  a  maximum  and 
a  minimum.  The  buyer  is  neither  anxious  nor  will- 
ing to  offer  as  much  as  his  estimate.  On  the  con- 
trary, he  naturally  desires  to  obtain  what  he  wishes 
as  much  as  possible  below  his  estimate  of  what  it  is 
worth  to  him.  His  motive  in  buying  labor  is  to 
obtain  the  surplus  of  the  price  which  the  product 
realizes  over  the  advances  he  has  to  make  to  obtain 


The  Limits  of  Wages. 


141 


it ;  and  the  smaller  the  advances  he  has  to  make  the 
greater  the  surplus  which  remains  in  his  possession. 
His  estimate  of  what  labor  is  worth  is  a  maximum 
beyond  which  he  can,  only  with  the  greatest  diffi- 
culty, be  forced  to  go.  The  difficulty  arises  from 
the  opposition  which  the  other  claimants  to  a  share 
in  the  product  will  offer  to  any  disturbance  of  the 
balance  which  has  already  been  established.  Should 
he  be  forced  to  offer  more  than  he  can,  consistently 
with  this  balance  of  claims  (including  his  own),  he 
will  have  to  face  the  necessity  of  establishing  a  new 
balance  unless  he  is  content  to  see  his  own  share 
shrink  without  a  protest.  Up  to  his  estimate  the 
employer  can  freely  offer,  but  the  less  he  can  force, 
or  induce,  the  laborer  to  accept,  the  larger  his  own 
share. 

The  laborer,  on  his  side,  does  not  regard  his  esti- 
mate as  a  maximum.  On  the  contrary,  even  should 
he  be  successful  in  extracting  from  the  employer  the 
full  measure  of  the  employer's  estimate,  it  does  not 
follow  that  he  is  quite  satisfied.  He  has  expended 
energy  which  it  requires  food  and  clothing  and 
shelter  to  replace :  he  has  occupied  a  position  of  de- 
pendence and  restraint,  for  the  irksomeness  of  which 
he  insists  on  such  a  compensation  in  satisfaction,  or 
the  means  of  satisfaction,  as  will  make  him  feel  his 
own  master  during  his  leisure  hours :  he  has  suffered 
from  the  monotony  of  work,  in  which  he  has  little 
immediate,  and  no  ultimate  interest,  and  his  nature 
demands  variety  and  recreation ;  but  the  equivalent 
in  satisfaction  which  he  feels  he  has  a  right  to  de- 


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142 


T/ic  Bargain  Theory  of  Wages, 


mand  for  these  disutilities  does  not,  as  a  rule,  meet 
all  the  wants  in  his  scale.  The  laborer,  except  per- 
haps in  the  lowest  grades  of  society,  has  a  great 
variety  of  wants  and  will  naturally  seek  to  satisfy  as 
many  of  them  as  possible.  Since  his  single  source 
of  satisfaction  is  the  wages  he  receives,  he  will  there- 
fore endeavor  to  get  as  high  a  price  for  his  labor  as 
he  can.  Thus,  though  he  enters  the  labor  market 
with  a  definite  estimate  of  what  he  is  worth,  his  esti- 
mate is  a  minimum  only. 

The  value  of  labor  will  generally  be  determined 
neither  at  the  one  estimate  nor  at  the  other,  but 
somewhere  between  the  two  estimates,  in  a  kind  of 
debatable  ground,  as  it  were.  The  practical  wages 
problem  is  the  delimitation  of  the  frontiers  of  the 
respective  territories  of  Capital  and  Labor.  What 
the  result  is  of  the  dispute  for  this  territory  depends 
on  circumstances.  Each  strives  to  enfrross  the 
whole  of  the  disputed  territory  and  probably  neither 
could  be  wholly  successful.  The  issue  depends  on 
the  relative  strength  of  the  contestants — on  the  weak- 
ness of  one  as  much  as  on  the  strength  of  the  other; 
and  the  issue  cannot  therefore  be  determined  before- 
hand. We  have  here  a  failure  of  the  equation  of 
exchange.  We  can  say  only  that  wages  will  be  de- 
termined somewhere  between  the  limits  by  the  com- 
parati ve  strength  and  knowledge  of  the  bargainers. 
The  limits  are  not  absolutely  fixed  ;  but,  within  the 
undisputed  and  permanent  frontiers,  each  is  com- 
paratively free  from  the  danger  of  aggression,  not 
perhaps  on  account  of  a  recognition  of  his  rights 


The  Debatable  Groimd. 


H3 


within  these  limits  but  on  account  of  the  special 
fierceness  of  the  resistance  to  a<^L^ression.  The  em- 
ployer will  find  great  difficulty  in  forcing  the  laborer 
to  accept  less  than  he  thinks  he  is  worth;  and  the 
laborer  will  find  social  and  economic  forces  of  great 
strength  arrayed  against  him  should  he  attempt  to 
exact  more  than  his  labor  is  really  worth  to  his  em- 
ployer. But  the  distribution  of  the  margin  between 
the  two  estimates  can  never  be  regarded  as  final. 
A  position  may  be  occupied  by  labor  in  one  year 
from  which,  in  the  next,  it  may  be  forced  to  retire ; 
and  the  outposts  of  the  employer  may,  at  times,  be 
thrown  farther  forward  than  they  can  be  permanently 
maintained.  Should  the  strength  of  one  party  be 
considerably  greater  than  the  strength  of  the  other, 
from  whatever  cause,  the  larger  part  of  the  debat- 
able ground  may  pass  into  the  hands  of  that  party ; 
and  when  the  strength  of  the  two  parties  is  nearly 
equal,  the  debatable  land  will  be  nearly  equally 
divided  between  them ;  but  no  arrangement  is  final. 
It  is  probable  that, .owing  to  various  causes,  the 
limits  claimed  by,  and  allowed  to,  labor  are  being 
steadily  pushed  forward  year  by  year;  but  the 
laborer  is  probably  still  far  from  absorbing  the  whole 
of  the  debatable  ground  because,  as  we  shall  see, 
and  as  we  have  seen,  though  the  fact  was  otherwise 
expressed,  the  rise  of  the  laborer's  estimate  renders, 
through  the  greater  efficiency  that  generally  follows 
higher  wages,  possible  a  rise  of  the  employer's 
estimate. 

It  is  necessary  to  consider  more  fully  the  nature 


?    (!, 


{        \    ■ 


■:    M 


-If 


VI 


i 


UP 


144 


The  Bargain  Theory  of  Wages, 


U:; 


! 


sir 


Iff 


! 


'I, 

hi 


of  these  two  estimates  between  which,  as  limits, 
actual  wages  are  determined  and  to  discuss  the  fac- 
tors which  strengthen  or  weaken  the  position  of  the 
laborer,  or  the  employer,  as  a  bargainer.  Some  of 
these  elements  and  factors  are  of  so  great  import- 
ance that  the  discussion  of  them  must  be  deferred, 
and,  in  the  remainder  of  this  chapter,  the  less  im- 
portant only  are  considered,  though  the  place  of  the 
more  important  is  indicated. 

The  laborer's  estimate  must  not  be  taken  as  merely 
the  equivalent  of  his  standard  of  subsistence,  how- 
ever broadly  this  conception  may  be  interpreted. 
The  standard  of  subsistence  is  not  even  an  adequate 
objective  representation  of  the  laborer's  estimate  of 
his  labor,  for  this  includes,  both  the  utility  of  the 
reward  and  the  disutility  of  the  labor.  The  utilities 
afforded  by  the  reward  may,  through  the  necessities 
of  the  laborer's  position,  be  so  intensified  that  the 
sum  of  them  may  the  more  quickly  counterbalance 
the,  disutilities  of  labor.  The  laborer's  estimate  is 
simply  his  demand  that  in  the  reward  he  may  find  a 
sufficient  recompense  for  the  various  discomforts 
and  inconveniences  he  incurs  in  working,  and  in 
working  at  the  bidding  of  another.  If  the  disutili- 
ties of  labor  diminish,  owing  to  shorter  hours,  or 
better  sanitary  conditions,  for  instance,  the  laborer 
might  be  ready  to  accept  a  lower  reward  because  the 
necessary  recompense  need  not  be  so  great ;  though 
this  event  is  hardly  likely  to  occur.  He  might  also, 
come  to  estimate  the  utilities  of  the  reward  more 
highly  owing  to  a  general  intensification  of  his  wants, 


The  Laborer  s  Estimate, 


145 


or,  owing  to  the  greater  cheapness  of  consumption 
goods,  he  may  find  the  equation  of  utility  and  dis- 
utiHty  in  a  smaller  wage.  The  social  and  indus- 
trial tendency  is,  however,  in  the  opposite  direction. 
The  equation  is  found  in  a  higher  wage;  for  the  dis- 
utility of  labor  is  probably  increasing  while,  owing 
to  greater  cheapness,  the  marginal  utilities  of  the 
commodities  which  make  the  reward  are  decreasing 
and  a  larger  amount  of  them  is,  therefore,  necessary 
to  provide  the  recompense  for  the  disutility  in- 
curred. 

The  standard  of  comfort  represents  one  element 
only  in  the  disutility  of  labor,  though  that  element 
is,  and  is  likely  to  remain,  the  most  important  ele- 
ment. It  corresponds,  in  a  certain  measure,  with  the 
amount  of  energy  expended  in  labor  and,  therefore, 
affords  us  an  objective  measure  of  the  principal  con- 
stituent of  a  somewhat  shifting  conception.  It  can- 
not be  taken  as  equivalent  to  the  laborer's  estimate 
for  it  takes  no  account  of  the  moral  disutilities  of 
labor.  We  must  take  into  account  the  effect  of 
work,  and  especially  of  work  at  the  bidding  of  an- 
other, on  the  mind  and  feelings  of  the  laborer.  The 
feeling  of  dependence  and  the  sense  of  the  irksome- 
ness  of  restraint  and  control  do,  indeed,  make  de- 
mands on  a  man's  energy,  and  this  expenditure  must 
be  made  up ;  but  the  equivalent  of  the  physical  en- 
ergy expended  would  not  be  regarded  as  a  sufficient 
prcemiuni  affectionis.  The  laborer's  estimate,  un- 
doubtedly, includes  this  purely  subjective  element; 
and,  in  one  sense,  the  laborer's  estimate  is  individual 


ill 

1j 

li 


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V: 


:, 


146 


T/ic  Bargain  Theory  of  Wages. 


and  subjective.  It  is  his  own  estimate  of  what  he 
is  worth  in  his  own  eyes,  not  necessarily  of  what  he 
is  worth  to  an  employer.  But  his  estimate  is  really 
no  more  individual  and  subjective  than  he  is  him- 
self.* His  estimate  is  framed,  as  his  opinions  are 
framed,  after  the  model  of  the  opinions  of  others. 
If  he  lives  among  men  who  value  themselves  and 
their  self-respect  highly,  his  estimate  will  be  high. 
He  will  not  accept  employment  which  brings  social 
disapprobation  except  for  an  additional  compensa- 
tion ;  and  there  are  some  occupations  in  which  he 
will  engage  only  under  compulsion,  and  to  which, 
under  no  circumstances,  will  he  allow  his  children  to 
be  apprenticed  and  trained.  What  he  regards  as  a 
degrading  occupation  he  will  leave  severely  to  those 
whose  self-respect  is  less.  Consequently,  it  is  not 
in  the  most  disgusting  occupations  that  the  highest 
wages  are  ^'>aid  ;  but  a  butcher's  assistant  will  receive 
more  than  a  grocer's.  His  estimate  is  framed,  as  we 
said,  on  the  model  of  the  estimate  which  others  have 
formed,  and,  more  particularly,  on  the  estimate 
which  the  employer  has  formed.  If  he  is  worth  so 
much  to  his  employer,  his  self-respect  will  not  allow 
him  to  estimate  himself  at  less.  In  his  employer's 
estimate,  in  so  far  as  he  knows,  or  thinks  he  knows, 
what  that  is,  he  has  an  assurance  of  his  merits  which 
his  own  conception  alone  could  not  give;  and  he 
may  accept  the  employer's   estimate  so  implicitly 

*  Cp.  Spinoza  Ethica,  part  iii.,  prop.  57  et  Schol,  QtUlibet  unius- 
cuiusque  individui  affeclus  ab  affectu  alterius  tantum  discrepat  guan- 
tum  essentia  unius  ab  essentia  alterius  differt. 


TJic  Laborer  s  Estimate. 


147 


that  it  never  occurs  to  him  that  his  subjective  esti- 
mate is  an  adopted  one. 

Strictly  speaking,  this  estimate  is  not  represented 
by  an  amount  of  commodities  but  by  that  amount 
of  commodities  which  will  afford  an  equation  of 
utility  and  disutility ;  and  the  equation  may  be  dis- 
turbed either  by  intensifying  or  by  reducing  the 
laborer's  wants  and  necessities;  or  by  increasing  or 
by  decreasing  the  disutility  of  labor.  Although, 
therefore,  the  laborer's  estimate  cannot  be  regarded 
as  an  absolute  minimum,  at  any  given  time,  or  ex- 
cept in  a  purely  formal  sense,  it  has  a  determining 
power.  The  standard  of  subsistence,  however  in- 
terpreted, is  simply  an  amount  of  commodities  and 
there  is  no  reason  why  the  amount  of  commodities 
a  man  has  been  in  the  habit  of  consuming  should 
determine  his  wages  unless  it  be  that  the  standard 
of  subsistence  is  simply  a  rough  and  ready  (but  in- 
complete, though  objective)  measure  of  the  disutility 
of  labor.  In  this  sense,  the  standard  is  a  determi- 
nant because  the  disutility  of  labor  must  be  coun- 
terbalanced, and  more  than  counterbalanced,  by 
the  utilities  which  the  reward  affords.  It  is  not  a 
final  determinant,  however,  even  of  the  minimum 
wage  because  circumstances  may  alter  and  a  new 
equation  be  necessary.  An  established  equation, 
however,  is  not  readily  altered,  and  throughout  all 
changes  certain  elements  remain  fairly  permanent. 
The  expenditure  of  physical  energy  is  nearly  con- 
stant, and  the  standard  of  comfort  is  that  amount 
of  utilities  normally  necessary  to  meet  this  constant 


\ 


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I  . 


I 


I  ! 


t; 


^.Ii:. 


if! 


i  i 


'f 


If 


i:l 


148 


T/tc  Bargain  Theory  of  Waf^cs. 


element  in  the  disutility  of  labor.  The  standard  of 
comfort  is,  therefore,  the  most  important  element 
in  the  laborer's  estimate  and  gives  to  that  estimate 
much  of  the  resisting  power  which  it  has.  The 
laborer's  estimate  is  not,  except  in  form,  a  minimum 
below  which  wages  cannot  fall,  but  it  has  great 
power  of  enforcing  itself.  If  the  equation  between 
utility  and  disutility  is  not  established,  the  laborer's 
sense  of  fair  play  is  wounded  and  his  work  will  suffer. 
His  efficiency  depends  almost  as  much  on  his  willing- 
ness as  on  his  physical  strength  and  dexterity,  and 
the  employer  who  tries  to  reduce  wages  in  his 
anxiety  to  increase  his  surplus  of  the  product  may 
easily  defeat  his  own  ends.  The  strength  of  the 
laborer's  position  depends  greatly  on  this  necessary 
weakness  of  the  employer  for,  though  theoretically 
the  employer  has  the  laborer  at  his  mercy  owing  to 
the  necessities  of  living,  practically  he  dare  not  push 
his  advantage. 

The  laborer's  estimate  is,  as  we  said,  an  equation 
of  two  factors,  the  disutility  of  labor  and  the  utility 
of  the  reward,  both  of  which  are  subject  to  inde- 
pendent variations — though  the  latter  more  so  than 
the  former. 

The  disutility  of  labor  is,  on  the  whole,  increasing. 
Many  of  the  disagreeable  features  of  modern  indus- 
try are  preventable  and  are  likely,  by  an  extended 
application  of  the  principles  of  the  factory  acts,  to 
be  prevented.  It  is  significant  that  the  worst  abuses 
of  modern  industry,  those  which  most  surely  destroy 
the  health  and  the  efficiency  of  the  worker,  are  most 


The  Disutility  of  Labor, 


149 


prevalent  in  those  industries  vvliich  have  lagged  be- 
hind in  the  industrial  development.  The  modern 
parallel  to  the  iniquities  of  the  early  factory  system 
is  found  not  in  the  factory  industries  but  in  home 
industries;  and  this  fact  is  so  notorious  that  the 
more  advanced  of  labor  advocates  propose  practi- 
cally that  home  industry  should  be  suppressed  by 
law.  The  improvement  of  sanitary  conditions  and 
the  shortening  of  the  hours  of  labor  effected  by  the 
factory  acts  have  probably  diminished  the  disutilities 
by  a  greater  amount  than  they  have  been  increased  by 
the  speeding  of  machinery  and  the  intensification  of 
work  which  have  accompanied  these  ameliorations  of 
the  conditions  of  labor;  and  have  perhaps  rendered 
the  speeding  economically  possible.*  It  is  certainly 
an  open  question  whether  the  expenditure  of  energy 
demanded  from  the  labor  in  industry  is  increasing 
or  decreasing ;  for  over  against  the  optimism  of  those 
Utopists  who,  looking  forward,  see  labor,  by  means 
of  short  hours  and  varied  occupations,  becoming 
pleasant  and  involving  no  disutility,  but  perhaps 
even  a  positive  utility  as  affording  an  exercise  for 
our  powers,  we  must  place  the  pessimism  of  J.  S. 
Mill,  who  was  inclined  to  doubt  whether  machinery 
had  lightened  human  labor. 

This  uncertainty  exists  only  in  reference  to  the 
positive  disutilities  of  labor,  if  the  paradoxical 
phrase  may  be  permitted ;  for  there  can  be  no 
doubt  that  the  negative  disutilities  are  increasing. 
These   arise   out  of   the  dependence  of   the  hired 

♦Nicholson,  Effects  of  Machinery  on  Wages,  p.  48. 


Hi 


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I    ! 


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§ 


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i  .1;; 


Jii 


■! 


150 


T/ic  Bargain  Theory  of  Wages. 


laborer  on  his  employer  and  the  widespread  feeling 
that  in  workin^jat  the  bidding  of  another  something 
of  the  full  stature  of  manhood  is  lost.  This  feeling 
is  a  wages  factor  of  increasing  importance.  The 
socialists  have  all  along  denounced  vehemently  what 
they  call  wage  slavery ;  and  the  ardor  of  the  apostles 
of  "  pure,"  or  producer's  co-operation,*  is  inspired 
by  the  same  idea.  The  idea  that  there  is  something 
rather  degrading  in  being  a  wage  earner  has  been 
fostered  by  the  more  zealous  advocates  of  profit 
sharing,  like  Mr.  Sedley  Taylor,  who  speaks  of  the 
"  moral  gain  to  the  workman  in  passing  from  the 
position  of  a  mere  wage  earner  to  that  of  an  associate 
in  profits.  * '  f  Whatever  the  attitude  of  the  working 
classes  towards  these  schemes,  there  can  be  no  doubt 
that  the  negative  disutilities  of  labor  are  of  great 
importance  in  the  wages  question,  and  that  with  the 
spread  of  education,  in  the  narrower  and  in  the  wider 
sense,  and  the  growth  of  the  political  power  of  the 
working  classes,  they  will  become  of  more  and  more 
importance.  The  greater  the  self-respect  of  the 
laborer  the  greater  will  be  his  estimate  of  the  dis- 
utility of  labor,  and  the  higher  will  the  lower  limit 
of  wages  stand. 

The  other  factor  in  the  equation  which  gives  the 
lower  limit  is  the  utilities  afforded  by  the  reward  of 

*  The  ideal  of  Producer's  Co-operation  is  "that  the  worker  shall 
be  elevated  to  the  position  of  partner  and  profit  sharer  instead  of 
being  the  hired  machine  of  the  capitalist  and  consumer." — Mr.  Gray, 
Secretary  of  the  Co-operation  Union,  quoted  by  Schloss,  Industrial 
Remuneration,  p.  202. 

f  Report  of  Industrial  Remuneration  Conference,  p.  256. 


The  Utility  of  the  Reward, 


151 


labor.  A  given  amount  of  satisfaction  may  be 
obtained  from  the  satisfaction  of  a  few  wants  of 
great  intensity  or  from  a  larger  number  of  less  in- 
tensity. It  is  possible,  therefore,  that  an  intensifi- 
cation of  the  elementary  physical  and  human  wants 
may  induce  the  individual  to  find  the  equation  of 
utility  and  disutility  in  a  smaller  amount  of  goods. 
Such  an  intensification  of  the  elementary  wants  is 
of  frequent  occurrence,  and  whenever  it  does  occur 
the  laborer  will  put  forth  more  effort  to  obtain  the 
satisfaction  than  he  puts  forth  at  other  times.  The 
skilled  artisan  who  is  compelled  to  take  relief  work 
provided  for  the  unemployed  does  not  value  himself 
the  less  but  the  reward  the  more ;  and  the  widowed 
mother  will  slave  for  a  pittance  to  keep  her  children 
from  starving.  In  comparison  with  their  necessities 
they  seem  to  place  no  value  upon  their  wo/k.  On 
the  other  hand,  the  farther  a  man  is  from  the  danger 
of  starvation,  the  less  will  be  the  marginal  utility  of 
the  reward,  and  the  sooner  will  he  find  that  the  dis- 
utility of  working  exceeds  the  utility  of  the  reward, 
and  the  higher,  therefore,  the  wages  which  must  be 
offered  to  induce  him  to  work.  Moreover  unto  him 
that  hath  shall  be  given ;  and  the  development  of 
the  purely  human  wants  will  increase  the  negative 
disutilities  of  labor,  making  dependence  more  irk- 
some and  the  sacrifice  of  leisure  more  ungrateful. 

The  individual  laborer  is  not,  necessarily,  de- 
pendent on  his  individual  estimate.  The  lower 
limit  which  he  sets,  or  would  set,  for  himself  is 
often  superseded  by  an  artificial  lower  limit  set  by 


(N 


jf|!i 

i' 

J 

152 


T/ie  Bargain  Theory  of  Wages. 


I'll 


ii 


11 


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I't 

■1!  i 


<  > 


\ 


the  industrial  condition  of  the  community  in  which 
he  lives.  In  new  countries,  agriculture  and  the  ex- 
tractive industries  set  the  standard  of  wages,  and  the 
wages  in  these  occupations  form  a  minimum  below 
which  the  wages  in  other  industries  cannot  fall. 
This  was  one  of  the  first  laws  of  wages  to  be  enunci- 
ated, and  subsequent  observation  has  corroborated 
Benjamin  Franklin's  statement  (though  not  his  in- 
ference) that  "  no  man  who  can  have  a  piece  of  land 
of  his  own,  sufficient  by  his  labor  to  subsist  his 
family  in  plenty,  is  poor  enough  to  be  a  manufacturer 
and  work  for  a  master."*  His  inference  that 
**  while  there  is  land  enough  in  America  for  our 
people,  there  can  never  be  manufactures  to  any 
amount  or  value,"  has  been  hotly  contested  by  the 
protectionists  and  was,  in  effect,  condemned  by 
Adam  Smith. f  The  competition  of  rival  nations 
in  foreign  trade  has  a  similar  tendency  to  create 
such  an  artificial  lower  limit  in  all  countries,  but  the 
tendency  is  not  so  strong  in  this  case  because  of 
the  greater  immobility  of  labor.  In  a  new  country 
every  man  thinks  he  knows  enough  to  be  a  farmer; 
and  the  readiness  of  access  to  the  land  improves  the 
laborer's  standing  not  merely  by  reducing  the  sup- 
ply of  hired  laborers  but  also  by  removing  some  of 
the  disabilities  which  might  make  the  laborer,  owing 
to  the  intensity  of  his  elementary  wants,  find  the 
equation  of  utility  and  disutility  in  a  smaller  quan- 
tity of  commodities.     While  a  man  "  can  have  a 

*  Benjamin  Franklin,   JVorh,  vol.  iii.,  p.  108. 
\  Wealth  of  Nations y  bk.  4,  chap,  i, 


Iii 


Mi 


An  Artificial  Lower  Limit. 


153 


piece  of  land  of  his  own,"  the  elementary  v  nts  are 
not  likely  to  be  much  in  evidence ;  and  the  freedom 
and  independence  of  the  farmer  render  the  de- 
pendence of  the  hired  laborer  more  odious  and 
unwelcome.  As  the  country  fills  up,  the  laborer 
has  to  depend  more  on  himself  and  on  his  own 
estimate.  This  does  not  mean,  as  Franklin  sug- 
gests, that  wages  must  fall  as  the  nation  becomes 
industrial.  Indeed,  the  effect  is  generally  in  the  op- 
posite direction  because  the  development  of  manu- 
factures creates  new  wants;  and  the  creation  of 
new  wants  means  that  the  laborer  must  receive 
a  larger  amount  of  commodities  to  establish  the 
equation  of  utility  and  d^sutilit3^  But  whether  the 
new  natural  limit  is  higher  or  lower  than  the  old 
artificial  limit,  the  laborer  has  now  to  depend  upon 
himself  alone. 

Th  1  upper  limit  of  wages  is  the  employer's  esti- 
mate of  what  the  laborer  is  worth  to  him ;  and,  since 
the  payment  of  wages  is  not  an  exercise  of  philan- 
thropy and  the  employer  is  driven  thereto  by  no 
physical  necessity,  but  impelled  by  a  purely  eco- 
nomic motive,  it  is  likely  to  be  both  more  definite 
and  more  absolute  than  the  laborer's  estimate.  It 
is  more  definite,  because  the  employer  is  less  liable 
to  be  governed  by  the  peculiarities  of  his  personal 
feelings  and  more  ready  to  accept  the  guidance  of 
his  fellows  who  are  at  least  as  able  to  make  an 
estimate  as  himself  and' are  more  animated  by  the 
same  motive  as  he  is.  The  laborer  has  to  form 
his  estimate  by  reference  to  the  somewhat  vague 


m 


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154 


The  Bargain  TJicory  of  Wages. 


and  subjective  ideas  of  utility  and  disutility  while 
the  employer  can  make  use  of  the  "  calculation  form 
of  utility."  It  is  true  that  he  has  to  calculate  in 
anticipation  the  price  he  can  obtain  for  the  fruits 
of  the  labor  he  purchases,  and  there  is  thus  a  pos- 
sibility of  error  in  his  calculations;  but  given  the 
price,  he  has  to  do  little  more  than  calculate  the 
efficiency  of  the  individual  laborer  which  he  can 
readily  measure.  The  upper  limit  is  more  absolute 
than  the  lower,  because  the  employer  has  a  stronger 
conviction  that  his  estimate  is  just  and  accurate; 
for  in  this  assurance,  he  will  be  able  to  offer  a  more 
effective  resistance  to  any  attempt  to  raise  wages 
above  this  limit. 

As  already  explained,  the  upper  limit  is  regarded 
by  the  employer  as  a  maximum;  and  if,  as  must  be 
the  case  when  labor  is  to  be  bought  and  sold,  the 
buyer's  estimate  is  higher  than  the  seller's,  the  only 
reason  why  the  employer  should  pay  the  maximum 
is  that  he  can  pay  it ;  and  this  he  is  not  likely  to  pay 
until  he  is  forced.  But  the  fact  that  he  can  pay  up 
to  the  limit  is  an  element  of  weakness  in  his  position 
as  a  bargainer;  and  should,  at  the  same  time,  the 
position  of  the  laborer  be  strong,  wages  may  be 
forced  nearly  up  to  the  maximum.  There  is  no 
other  sufficient  reason  why  he  should  pay  out  the 
maximum  wage.  Competition  of  master  with 
master  is  not  keen  enough  to  bring  about  this  re- 
sult;  and,  besides,  the  effect  of  competition  is  set 
aside  by  the  tacit  or  avowed  combination  of  masters 
to  pay  as  low  wages  as  is  compatible  with  efficiency, 


The  Employer  s  Estimate. 


155 


and  by  the  fact  that  the  development  of  the  capi- 
talist regime  has  created  a  surplus  of  irregularly 
employed  labor  on  which  much  of  the  force  of  the 
competition  between  masters  for  labor  is  dissipated. 
In  fact,  apart  from  the  power  which  the  laborers 
have  of  enforcing  their  demands,  there  is  no  reason 
to  suppose  that  the  employer  will  willingly  pay  as 
mi'.^h  as  he  can.  Rather  does  he  endeavor  to  pay 
as  little  as  he  may;  and  he  respects  the  laborer's 
estimate  only  because  of  the  effect  which  an  out- 
raged sense  of  justice  has  on  efficiency. 

However  powerful  the  laborer  is,  we  may  practi- 
cally regard  this  upper  limit  as  a  final  and  unsur- 
mountable  obstacle  to  the  rise  of  wages.  The 
employer  can  pay  more  to  labor  only  by  paying  less 
to  the  other  claimants  for  a  share  of  the  product  and 
this  would  involve  a  readjustment:  which  is  a  task 
he  is  not  likely  to  seek  to  undertake.  He  mTiy  be 
forced  by  necessity,  or  by  the  pressure  of  public 
opinion,  to  undertake  it;  but,  since  one  of  these 
claims  is  his  own,  and  all  are  made  by  men  of  his 
own  class  and  standing,  it  will  requiic  a  very  great 
pressure.  Labor  it  is  natural  fur  him  to  regard  as 
the  agent  which  should  be  sacrificed  for  the  hi- 
tegrity  of  the  others;  and  it  would  be  a  reversal  of 
all  his  class  and  business  preconceptions  to  think  of 
reducing  the  shares  of  the  other  claimants  to  increase 
the  share  which  goes  to  labor.  The  wide  acceptance 
of  the  doctrine  of  a  living  wage  shows  that  there  is 
a  growing  belief  that  the  wages  of  labor  should  be 
regarded  as  a  first  charge  on  the  product  of  industry. 


1 1 

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156 


T/te  Bargain  Theory  of  Wages. 


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11: 


!  r,      '' 


and  the  meaning  of  this  is  that,  in  the  opinion  of 
many,  the  employer,  if  necessary,  should  face  the 
difficulties  of  readjusting  the  claims. 

If  this  readjustment  cannot  be  effected,  the  suc- 
cess of  the  laborer  in  raising  wages  above  the  em- 
ployer's estimate  would  result  in  a  restriction  of 
industry  unless  there  were  some  way  open  to  the 
employer  to  neutralize  its  effect.  There  is  one  ob- 
vious way  in  which  he  can  render  a  demand  ineffec- 
tual which  he  is  not  strong  enough  otherwise  to 
resist.  The  law  of  substitution  *  is  especially  appli- 
cable as  between  capital  and  labor;  and  the  strength 
of  the  laborer's  demand  may  be  turned  aside  by  an 
increased  use  of  fixed  capital.  Machinery,  at  least 
to  a  very  large  extent,  can  be  made  to  do  the  same 
work  as  labor;  and  labor-saving  machinery  is  most 
used  where,  as  in  America,  wages  are  high.  The 
immediate  result  of  the  substitution  of  capital  for 
labor  is  to  reduce  the  demand  for  labor,  and,  there- 
fore, to  weaken  the  laborer's  position ;  and  it  is  the 
immediate. result  only  which  is  of  importance  in  this 
connection.  The  law  of  substitution  thus  operates 
frequently  to  render  conce:  sion  to  the  demands  of 
labor  unnecessary.  When  the  law  of  substitution 
is  not  operative,  and  there  are  still  many  industries 
in  which  labor-saving  machinery  cannot  be  used  in- 
stead of  labor,  a  successful  demand  for  wages  higher 
than  the  employer's  limit  will  restrict  industry. 
For  a  general  readjustment  of  the  distributed  shares 
will  occur  only  when  the  demand  for  higher  wages 

♦  C/.  Marshall,  Principles  of  Economics,  passim. 


m 


li 


The  Law  of  Substitution. 


157 


has  been  successful  over  a  large  area;  and  success  in 
those  industries  where  the  law  of  substitution  is  not 
operative  is  not  enough  to  force  a  general  readjust- 
ment. Accordingly,  a  demand  which  requires  a 
readjustment  will  be  neutralized  in  most  industries 
by  the  law  of  substitution  and  in  the  others  will  result 
in  a  restriction  either  of  profits  or  of  employment, 
or    Itimately  of  both. 

It  may  be  suggested  that  where  the  law  of  substi- 
tution does  not  protect  the  employer,  there  is  a  cer- 
tain compensation  for  the  higher  wages  which  will 
prevent  the  restriction  of  industry.  The  working 
classes  form  the  great  majority  of  consumers,  and 
their  increased  spending  power  may  make  it  profit- 
able to  introduce  improved  processes  of  production. 
But  unfortunately  for  the  employers  who,  debarred 
by  the  nature  of  their  industry  from  using  the  law  of 
substitution  in  their  own  defense,  have  been  forced 
to  pay  higher  wages  than  they  consider  they  can 
afford,  the  increased  demand  for  commodities  will 
probably  not  affect  the  industry  which  they  are 
engaged  in  before.  It  is  in  the  highest  skilled 
trades,  mainly,  where  artistic  workmanship  is  re- 
quired, that  machinery  cannot  be  introduced  as  a 
substitute  for  human  labor;  and  the  demand  of  the 
working  classes  for  the  product  of  these  industries 
is  small  and  is  likely,  in  spite  of  any  possible  in- 
crease of  wages,  to  remain  small.  The  demand  of 
the  working  classes  is  for  commodities  produced  in 
those  industries  where  the  law  of  substitution  is 
operative.     Accordingly,  the  compensation  to  thq 


(  ^'1 


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158 


77if  Ihrrgain  Theory  of  Wages, 


unfortunate  employer  who  has  been  forced  to  pay 
hii^her  wages  than  he  can  afford,  is  found  only  in 
that  increased  general  prosperity  which  tends  to 
follow  from  a  permanent  increase  in  the  demand 
for  the  products  of  any  industry  or  group  of  indus- 
tries. The  compensation,  therefore,  if  not  highly 
problematic,  is  at  least  very  indirect. 

We  may  conclude,  then,  that  the  employer's  esti- 
mate is  practically  a  fixed  and  constant  maximum. 
The  attempt  to  raise  wages  above  this  limit  will 
rarely  be  successful  and,  in  those  industries  where  it 
may  be  immediately  successful,  rejoicings  are  prema- 
ture. The  endeavor  "  o'erleaps  itself  "  and  restricts 
employment;  and,  in  a  short  time,  the  employer's 
estimate  will  be  re-established  more  firmly  than  ever 
as  the  upper  limit  of  wages. 

The  employer's  estimate  of  the  value  of  labor  is 
the  resultant  of  two  factors,  the  amount  which  the 
laborer  can  produce  and  the  resources  at  the  com- 
mand of  the  employer.  The  first  of  these  factors 
is  so  obvious  that  the  Productivity  Theory  was  based 
on  the  neglect  of  the  second.  The  Wages-Fund 
Theory  undoubtedly  went  to  an  extreme  in  the  im- 
portance it  attached  to  this  second  factor,  but  it 
rightly  emphasized  the  fact  that  the  employer  is 
limited  by  the  actual  resources  at  his  command  in 
the  amount  that  he  can  offer  for  labor.  By  this 
we  mean  not  by  the  resources  of  any  casual  individ- 
ual who  may,  rightly  or  wrongly,  aspire  to  be  an 
employer,  but  by  the  resources  o*"  the  marginal 
employer :  that  is,  ultimately  by  th<      mount  of  the 


I'     I 


Factors  in  the  Employer  s  Estimate.  1 59 


present  income  which  the  community  is  willing  to 
divert  from  present  consumption  to  the  buying  of 
labor.  The  Wages-Fund,  in  the  narrower  sense  of 
the  resources  immediately  (including  credit)  at  the 
command  of  the  employer,  even  though  it  be,  as  is 
asserted,  continuously  replenished,  is  an  important 
fact  in  determining  the  proper  limit.  The  Wages- 
Fund  is  a  "  Zwischen-reservoir, "  as  Roscher  has 
termed  it ;  and  although  the  capacity  of  the  reser- 
voir is  no  measure  of  the  volume  of  the  supply,  the 
situation  of,  and  the  height  of  the  water  in,  the  reser- 
voir determine  the  height  to  which  the  water  can 
rise.  The  employer  is  the  distributor  of  wages  and, 
although  the  amount  of  his  resources  can  affect 
money  wages  only,  the  question  of  money  wages  is 
the  most  important  part  of  the  question  of  real  wages. 
The  resources  at  the  disposal  of  the  employer  in- 
clude the  credit  he  can  command  at  the  bank  and 
elsewhere.  The  monetary  and  banking  systems  of 
the  community  are  thus  of  immense  importance  to 
the  working  classes.  The  volume  of  business  peri- 
odically increases ;  and,  if  the  money  of  the  country 
is  inelastic  and  does  not  expand  in  volume  when 
the  volume  of  business  expands,  there  is  a  great 
danger  that  the  value  of  labor  wall  periodically  de- 
crease. When  banking  facilities  are  rare  and  the 
credit  system  defective  or  undeveloped  various  de- 
vices are  adopted,  generally  in  connection  with 
the  method  of  remuneration,  to  supply  the  lack. 
Wages  are  paid,  not  weekly  or  fortnightly,  but 
monthly  or  quarterly,  or  they  are  paid  wholly  or  in 


\ 


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T/w  Bargam  Theory  of  Wages. 


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part  in  goods  or  in  orders  on  a  store  controlled 
directly  or  indirectly  by  the  employer,  or  in  dwelling- 
houses  or  land  provided  by  the  employer;  and  the 
effect  is,  in  every  case,  to  provide  a  somewhat  in- 
efficient substitute  for  credit  and  to  enable  the 
employer  to  do  a  larger  business  on  his  available 
capital.  The  motive,  of  course,  is  not  any  desire  to 
raise  the  wages  of  the  workmen ;  but  were  it  not 
that  these  devices  have  serious  indirect  consequences 
for  the  laborer,  the  practice,  even  from  the  laborer's 
point  of  view,  would  be  laudable  wherever  the  credit 
system  is  not  developed.  It  is  significant  that  in 
Canada  at  any  rate  these  devices  fall  naturally  into 
disuse  without  the  necessity  of  legislation  as  the 
banking  system  expands,  and  that  they  are  practised 
now  only  in  back  country  districts  or  by  employers 
whose  credit  at  the  bank  is  not  good.  Unfortu- 
nately, the  practice  is  attended  by  so  many  evils 
which  weaken  the  position  of  the  laborer  that  their 
influence  in  raising  wages  is  as  nothing  in  compari- 
son with  the  influence  of  their  indirect  effects  in 
lowering  wages.* 

The  upper  limit  of  wages  is  fixed  but  only  for  the 
time  being.  It  is  not  unchangeable  and  may  rise 
and  fall  with  changes  in  industrial  circumstances. 
It  may  fall  as  well  as  rise,  although  the  progress  of 
the  working  classes  during  the  last  half  century  has 
made  the  idea  of  a  lowering  of  the  upper  limit 
strange  and  unfamiliar.      The  employer's  estimate 

*  For  a  further  discussion  of  this  question  see  Chap.  VIII.  of  this 
essay. 


IS 


Variations  of  the  Employer  s  Estimate.       i6i 


will  rise,  in  general,  from  two  causes,  viz.,  increased 
efficiency  and  an  improved  credit  system.  The 
conditions  of  a  rise  of  efficiency  are  obvious  and 
have  been  in  part  already  discussed  in  the  earlier 
chapters.  The  most  important,  as  well  as  the  most 
obvious,  are  the  spread  of  elementary  and  technical 
education  and  the  influence  of  high  wages  in  im- 
proving the  industrial  capabilities  of  the  laborer. 
Equally  important,  though  not  quite  so  obvious,  is 
the  influence  which  the  lower  limit  has  on  the  upper 
limit.  Generally  speaking,  the  higher  the  lower 
limit  the  greater  the  efficiency  of  the  laborer.  The 
man  whose  self-respect  is  great  is  likely,  other  things 
being  the  same,  to  prove  the  better  workman.  But 
this  is  true  only  in  general,  because  a  man's  self- 
respect  is  never  so  militant  as  when  it  is  wounded, 
and  the  attempt  to  violate  the  laborer's  self-respect 
will  result  in  a  lowering  of  efficiency. 

These  limits  are,  in  the  main,  determined  inde- 
pendently of  the  influence  of  outside  causes.  The 
laborer  determines  the  lower  limit  and  the  employer 
the  upper  limit,  and  public  opinion  and  legislation, 
which  have  considerable  influence  in  determining 
where  between  the  limits  actual  wages  shall  be 
fixed,  have  no  certain  and  regular  influence  on  the 
limits  themselves.  The  influence  is  felt  mainly, 
where  at  first  we  should  hardly  expect,  in  maintain- 
ing the  upper  limit  higher  than  it  ought  to  be. 
This  occurs  more  frequently  in  the  case  of  the 
wages  of  management  than  in  the  wages  of  hired 
labor.      The  employer,  influenred  by  the  idea  of 


II 


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i  ii 


i 


ii 


f"; 


162 


The  Bargain  Theory  of  Wages. 


i( 


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k 


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what  ought  to  be  a  living  wage  for  men  of  his  own 
class  and  rank,  frequently  pays  higher  wages  to  his 
managers  than  their  work  is  worth.  At  least  this  is 
the  conclusion  which  follows  from  the  remarkable 
fact  to  which  Mrs.  Sidney  Webb  has  called  atten- 
tion in  her  Co-operative  J^Iovetnent :  * 

"  By  selecting  officials  and  managers  from  a  class 
without  a  conventional  and  extravagant  standard  of 
expenditure,  they  (/.  ^.,  the  "  Lancashire  Limiteds ") 
have  reduced  the  earnings  of  the  brain  worker  to  the 
level  of  his  actual  wants — to  the  personal  expenditure 
needful  for  the  full  and  effective  use  of  his  faculties. 
The  preposterous  salaries  given  by  upper  class  share- 
holders to  upper  class  officials — the  ^^2000  to  ;;^5ooo  a 
year  have  been  replaced  by  modest  incomes  of  ;^2oo  to 
;^4oo  and  apparently  without  detriment  to  skill  or 
integrity." 

Between  these  limits  the  value  of  labor  is  deter- 
mined by  the  comparative  strength  of  the  bargainers. 
If  the  laborer  is  too  weak  to  enforce  his  claim  the 
wages  of  labor  will  be  nearer  the  lower  limit :  if  the 
laborer  is  a  strong  bargainer,  near  the  employer's 
estimate.  In  some  cases  where  organization  and 
combination  have  greatly  strengthened  the  laborer's 
position,  the  margin  of  debatable  territory  will  be 
almost  absorbed  by  labor;  and  this  is  probably  the 
case  where  a  trade-union  minimum  wage  is  enforced. 
The  object  of  trade-union  policy  would  then  be  to 
force  a  general  readjustment   of  the  terms  of  dis- 

*  Beatrice  Potter,  The  Co-operative  Movement,  p.  132. 


71  w  ruxrgaining  Process. 


163 


tribution — a  much  more  difficult  task  than  that, 
already  accomplished,  of  forcing  wages  up  to  the 
employer's  limit  because  there  will  now  be  opposed 
to  forces  of  trade-unionism,  not  merely  the  objection 
of  the  employer  to  a  curtailment  of  his  profits,  but 
also  the  resistance  of  the  other  participants  in  the 
product  to  any  readjustment  which  means  a  dimi- 
nution of  their  shares.  It  is  impossible  to  determine 
whether,  or  how  frequently,  labor  has  been  able  to 
absorb  the  margin ;  for  the  employer's  maximum  is 
definitely  known  only  to  the  employer;  and  his 
protestations  (because  they  are  the  protestations  of 
an  interested  person)  cannot  be  accepted  except  at 
a  liberal  discount.  The  fluctuations  in  the  actual 
rate  of  wages  which  are  frequent  though  not  violent 
seem  to  forbid  us  to  assume  that  the  margin  has 
been  absorbed  permanently  by  either  party.  The 
strength  of  the  laborer,  through  combination,  is 
very  great ;  but  his  necessities,  the  influence  of 
which  he  endeavors  to  neutralize  by  means  of  these 
combinations,  are  also  very  great ;  and  combination 
is  being  met  by  combination. 

The  Wages-Fund  Theory,  which  we  saw  presented 
the  form  of  a  reconciliation  of  the  other  two  great 
theories,  states  explicitly  that  actual  wages  are  de- 
termined solely  by  means  of  competition.  From 
the  standpoint  of  the  fuller  meaning  which  has  been 
given  to  the  limits  of  the  Wagcs-F'und  Theory,  it 
is  obvious  that  competition  is  not  the  only  factor 
which  enters  into  the  determination  of  actual  wages 
between  the  limits  although  undoubtedly  it  is  one 


ill 


Vff- 


164 


T/tc  Jtari^ain  Theory  of  Wages. 


;ii, 


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of  the  most  important.  The  competition  of  master 
with  master  for  labor  tends  to  raise  wages  towards 
the  upper  Hmit :  the  competition  of  laborer  with 
laborer  for  work  tends  to  force  wages  down  to  the 
lower  limit ;  and  tlie  supply  and  demand  of  labor  is 
of  decisive  importance  in  the  determination.  But 
competition  is  not  the  only  factor  or,  at  the  best,  is 
only  a  general  name  for  the  working  of  several  fac- 
tors the  nature  of  which  requires  more  explanation 
than  is  given  in  the  use  of  one  general  term.  The 
strength  or  weakness  of  the  laborer's  position  is 
only  in  part  determined  by  the  number  of  competi- 
tors for  work.  We  are  not  dealing  with  a  mere 
commodity  whose  value  may  be  completely  deter- 
mined by  the  more  or  less.  We  must,  in  the  case 
of  labor,  take  into  account  the  knowledge  which  the 
laborer  has  of  the  general  conditions  of  supply  and 
demand  and  the  presence  or  absence  of  that  char- 
acter and  decision  which  would  enable  him  to  take 
advantage  of  his  knowledge,  of  the  strength  of  his 
own  position  and  the  weakness  of  his  employer's. 

The  strength  of  the  laborer  as  a  bargainer  depends 
on  his  knowledge  of  the  market.  Other  things  be- 
ing equal,  knowledge  is  power  and  here  the  laborer 
is  weak.  It  is  true  that  the  improvement  there  has 
been  in  the  laborer's  position  during  the  last  half 
century  has  been,  to  a  large  extent,  due  to  his 
greater  knowledge  of  the  conditions  of  the  labor 
market.  The  differential  advantage  which  the  em- 
ployer has  always  had  owing  to  his  greater  knowl- 
edge and   his   wider   opportunities    for    obtaining 


Knoivlcdgc  is  Poiver. 


,6^ 


information,  has  been  greatly  reduced  by  the  spread 
of  {general  education,  by  the  dissemination  of  indus- 
trial news  through  the  press,  by  the  organization 
and  federation  of  labor  unions,  and  by  the  opening 
of  industrial  bureaus,  State  or  municipal,  for  the 
gathering  in  and  dissemination  of  information  re- 
garding the  condition  of  industry  in  different  parts 
of  the  country.  The  differential  advantage,  how- 
ever, still  continues  in  favor  of  the  employer;  for, 
although  at  the  present  day  a  labor  bureau  is  re- 
garded as  an  indispensable  part  of  the  administrative 
machinery  of  every  progressive  State  or  province, 
yet,  till  now,  the  information  these  bureaus  have 
collected  and  published  has  probably  been  of  more 
service  to  the  economist  and  the  statistician  than  it 
has  been  to  the  working  classes.  Indirectly,  no 
doubt,  through  legislation  promoted  in  consequence 
of  the  evidence  thus  presented,  the  interests  of  the 
laborer  have  been  served ;  but  he  is  still  generally 
either  too  ignorant,  or  too  apathetic,  to  make  much 
direct  use  of  the  reports. 

The  laborer's  ability  to  acquire  information  and 
his  ability  to  use  such  information  as  he  has  ac- 
quired, have  sometimes  been  restricted  by  methods 
of  industrial  remuneration.  The  truck  system, 
which  theoretically  might  have  so  many  advantages 
for  the  wage  earner,  has  invariably  served  to  hamper 
his  movements  and  to  blind  him  to  the  knowledge 
of  the  actual  condition  of  industry.  The  distinction 
between  real  wages  and  money  wages  is  easy  to 
draw  in  theory,  and  almost  impossible  to  draw  in 


iWH J..-  u)La.iinLiiu-——a 


t66 


The  Bargain  Theory  of  Wages. 


if 


W 


li 


l! 


!■ 


practice;  and  the  truck  system,  in  all  its  modifica- 
tions, has  served  to  make  it  even  harder.  Profit 
sharing,  and  other  methods  of  deferred  payment, 
whatever  the  motive  which  inspires  them,  have  the 
same  tendency  to  make  it  more  difiicidt  for  the 
laborer  to  discover  where  his  real  interest  lies. 

Knowledge  is  not  power,  unless  there  is  both 
ability  and  disposition  to  make  use  of  it ;  and  on 
this  account  the  employer  is  again  stronger  than 
the  laborer.  The  laborer  is  at  a  disadvantage  be- 
cause his  necessities  do  not  allow  him  to  make  use 
of  the  knowledge  he  l^-^i.  He  cannot  often,  even 
if  he  always  would,  follow  wherever  his  advantage 
calls.  The  immobility  of  the  laborer  may  be  re- 
garded as  the  crowning  disability  of  labor.  It  is 
true  that  the  employer  is  also  handicapped  by  the 
fact  that  fixed  and  specialized  capital  is  peculiarly 
immobile;  but  his  disadvantage  is  not  so  great  nor 
is  it  so  immediate.  Because  the  laborer  must  live 
by  his  work,  it  is  more  often  he  who  seeks  the  em- 
ployer than  the  employer  who  has  to  follow  after 
the  laborer.  The  immobility  of  specialized  capital  is 
not  a  very  great  disadvantage  because  the  employer 
is  the  centre  of  attraction.* 

Every  disability  under  which  the  laborer  suffers 
weakens  his  position  as  a  bargainer  and  tends  to 
keep  --vages  down  near  the  lower  limit.  Apart  '"rom 
the  special  disadvantages  they  bring,  they  generally 
have  the  effect  of  weakening  character.     Strength 

*  For  the  discussion  of  Mobility  of  Labor  see  the  two  following 
chapters. 


iW 


m 


Factors  in  the  Wages  Bargain. 


167 


as  a  bargainer  corresponds,  in  some  measure,  with 
the  strength  of  the  economic  character  of  the  bar- 
gainer. He  who  knows  his  interest  and  is  zealous 
to  pursue  it  occupies  a  strong  position.  The  effect 
of  many  of  the  minor  disabihties  is  to  weaken  those 
quahties  which  would  enable  the  laborer  to  take  ad- 
vantage of  those  conditions  which  are  in  his  favor. 
The  consciousness  of  the  immediateness  of  his  ne- 
cessities, however,  prevents  him  from  taking  th( 
necessary  risks  to  turn  these  conditions  to  his  ad- 
vantage and  the  fruit  that  might  be  his,  had  he 
the  means  of  gathering,  fails  to  his  employer. 
Character  and  decision  are  qualities  in  which  the 
employer,  by  his  circumstances  and  his  training,  is 
strong,  and  consequently,  in  the  contest  of  strength 
between  the  employer  and  the  employed,  the  result 
would  generally  be  much  in  the  favor  of  the  em- 
ployer were  it  not  that  the  laborer,  conscious  of  his 
weakness  and  deficiency  has,  in  combination  sought 
and  found  a  substitute  for  character. 

Trade-unionism  or  collective  bargaining  is  a 
method  by  which  the  laborer  endeavors  to  remove 
or  to  minimize  the  disabilities,  notably  the  immedi- 
ate pressure  of  his  necessities  which  forbid  him,  in 
isolation,  to  stand  out  for  his  price.  The  competi- 
tion of  master  with  master  for  labor  is  not  so  keen 
that  it  is  not  neutralized  and  more  than  neutral- 
ized by  the  competition  of  laborer  with  laborer  for 
work;  and  by  combination  the  laborer  tries  to  do 
away  with  the  suicidal  competition  of  laborers  with 
each  other.     This  is  the  first  but  not  the  only  aim 


Wi 


ii 


'-^^:3^^^i«!mmfmmimmmmm 


I'  ■  : 


ill  I 


ii^M 


'■'■i  \ 

.1::      r 


1 68 


T/ic  Bargain  TJicory  of  Wages. 


of  trade-unionism.  The  early  passive  policy,  if  we 
may  so  call  it,  results  in  the  organization  of  labor; 
and  thi!>  organized  force  is  used  to  snatch  advantage 
from  any  disorganization  in  the  ranks  of  the  em- 
ployers. So  long  as  the  employers  are  meeting  with 
slight  resistance  the  lack  of  harmony  in  their  ranks 
is  of  small  importance  but  this  lack  of  harmony  is 
the  opportunity  of  organized  labor. 

The  phrase  "  substitute  for  character"  does  not 
necessarily  imply  a  depreciation  of  trade-unionism. 
Trade-unionism  is  only  one  expression  of  the  maxim 
"  union  is  strength  "  ;  and  we  cannot  condemn  it  as 
arising  out  of  weakness  without  at  the  same  time 
passing  condemnation  on  the  whole  evolution  of 
society.  Trade-unionism,  though  it  does  act  as  a 
substitute  for  character,  does  not  destroy  character. 
On  the  contrary,  it  builds  character  up  and  trade- 
unionists  are  the  most  energetic  and  self-reliant,  not 
the  least  energetic  and  least  self-reliant,  of  the  work- 
ing classes.  The  ability  to  combine  is  an  evidence  of 
comparative  strength,  not  of  comparative  weakness. 

There  are  other  external  influences,  such  as  legis- 
lation and  the  pressure  of  public  opinion,  operating 
on  behalf  of  labor  which  may,  without  reservation, 
be  spoken  of  as  substitutes  for  character.  Whatever 
their  final  effect  on  the  character  of  the  labor  they 
do  not  spring  from,  or  imply,  the  possession  of  those 
qualities  which  make  for  industrial  success.  On  the 
contrary,  these  influences  are  generally  exerted  in 
behalf  of  those  who,  from  one  cause  or  another,  are 
weak  and  lacking  in  character  and  decision.     Such 


•jm^  ■nnjniiiiirjinif 


Substitutes  for  Character. 


169 


influences  are  not  to  be  condemned  merely  because 
they  have  not  their  origin  in  the  strength  of  those 
on  behalf  of  whom  they  are  exercised.  If  the  effect 
is  to  weaken  or  to  prevent  the  development  of  char- 
acter they  ought  to  be  condemned  and  repudiated  ; 
but  we  cannot  decide  a  priori  that  every  substitute 
for  character  has  this  effect.  It  is  true  from  of  old 
that  the  curse  of  the  poor  is  their  poverty,  and  the 
disabilities  of  labor  are  cumulative  in  their  effect. 
Consequently,  if  the  influence  of  legislation  and  the 
pressure  of  public  opinion  can  be  directed  to  the 
raising  of  this  acquired  curse,  the  result  may  be  the 
development  of  character.  Legislation,  undoubt- 
edly, has  had  this  effect.  The  position  of  the  laborer 
as  a  bargainer  has  been  improved  not  merely  by 
Factory  Acts  and  Employers'  Liability  Acts,  but  by 
every  measure  which,  positively  or  negatively,  aims 
at  the  amelioration  of  the  condition  of  the  people. 
Compulsory  education,  the  encouragement  of  thrift, 
and  measures  of  a  like  kind,  strengthen  the  laborer's 
position,  because  they  tend  to  remove  the  disadvan- 
tages under  which  he  suffers,  owing  to  his  ignorance 
and  to  his  necessities.  Such  measures  probably 
promote  rather  than  hinder  the  development  of  his 
character  and  thus,  in  a  twofold  manner,  strengthen 
his  position.  Even  though  a  measure  may  seem 
calculated  to  check  the  developments  of  character 
and  self-reliance,  it  is  not  necessarily  to  be  con- 
demned. The  evils  and  abuses  at  which  it  is  aimed 
may  more  completely  destroy  self-reliance,  but  the 
propoi^ed  remedy  obviously  requires  reconsideration 


m 


i  i 


ii 


"ff  J 


js- 


v.; 


[ii 


|r 


•MHimL-a^m^'.siinxKifJtJmKs 


1  U ;    I 


m  i 

If  I 
-If 


i: 


K^ 


I 


170 


77/^  Bargain  TJicory  of  Wages, 


and  amendment.  It  is  a  poor  remedy  which  aims 
only  at  removing  a  symptom,  instead  of  removing 
the  cause  of  the  malady.  The  abuses  which  can  be 
removed  by  legislation  arise  out  of,  and  are  fostered 
and  protected  by  weakness  and  want  of  character; 
and  if  these  are  perpetuated  by  legislation,  in  a  short 
time  new  evils,  as  great  and  as  objectionable,  will 
have  arisen  to  produce  the  same  effect  as  the  old 
abuses  which  have  been  suppressed. 

There  is  little  danger  that,  when  public  opinion  is 
active  on  the  laborer's  behalf,  it  will  operate  to  make 
the  disabilities  of  labor  permanent;  for  its  influence 
wdll  be  principally  exercised  in  forms  which  give  the 
laborer  confidence  in  his  claims,  and  make  him  more 
resolute  in  his  efforts  to  enforce  them.  Public 
opinion  can  strengthen  the  laborer's  position  because 
there  is  something  depressing  in  being  in  a  minority, 
and  the  employer  is,  to  some  extent,  subject  to  this 
common  failing.  Thus,  even  when  public  opinion 
finds  no  more  forcible  expression  than  in  letters  to 
the  newspapers,  its  influence  on  the  industrial  situa- 
tion may  be  considerable;  and,  when  the  mind  of  a 
whole  community  is  strongly  impressed  with  the 
justice  of  the  laborers'  claims,  the  employer  will  not 
be  able  to  follow  up  his  advantages  so  promptly  and, 
at  the  critical  moment,  his  hand  may  be  stayed 
through  a  dread  of  social  disapprobation.  Occa- 
sionally, public  opinion  makes  a  decided  protest 
against  the  rapacity  of  the  employer  and  expresses 
its  protest  not  nerely  in  words  but  in  money  con- 
tributed to  Eissist  a  picturesquely  depressed  class  in 


Public  Opinion  as  a  Wages  Factor. 


171 


its  struggle  for  economic  freedom  or  higher  wages. 
The  great  dock  strike  in  London  was  a  success  be- 
cause of  popular  sympathy  and  popular  contribu- 
tions. The  demand  for  the  dockers'  "tanner" 
approved  itself  and  public  opinion  was  aroused 
against  the  magnificence  of  the  dock  companies' 
attitude — the  attitude  of  the  Friend  of  Humanity 
to  the  Knife  Grinder. 

"  I  give  thee  a  sixpence.  I  will  see  thee  damned 
f^rst." 

The  influence  of  public  opinion  '"  has  hitherto  been 
exerted  on  behalf  of  labor,  only  in  a  capricious  and 
a  spasmodic  way;  and  the  merits  of  the  case  have 
usually  had  little  to  do  with  the  matter.  Public 
opinion  is  not  a  force  on  which  the  friends  of  labor 
can  place  reliance;  for  it  might  easily  be  thrown  into 
the  opposite  scale  whenever  the  convenience  of  the 
public  is  threatened.  The  increasing  humanitar- 
ism  or  sentimentalism  of  the  public,  and  the  in- 
creased information  which  all  men  have  of  the  way 
in  which  the  other  half  lives  may  suggest  to  the 
more  hopeful  that,  in  the  future,  public  opinion  will 
strengthen  the  laborer,  not  merely  in  the  dramatic 
struggle  of  the  occasional  strike,  but  also  in  the 
steadier  contest  of  which  a  strike  is  but  a  violent 
episode.     There  is  no  doubt  a  growing  interest  in 

*  The  distinction  drawn  between  legislation  and  public  opinion  is 
not  absolute.  Legislation  is  but  crystallized  public  opinion,  and  the 
most  beneficent  pieces  of  labor  legislation,  e.  g.,  the  Factory  Acts, 
etc.,  have  been  carried  as  a  result  of  the  systematic  pressure  of  en- 
lightened public  opinion. 


I 


I  ■ 


ill 


i 


172 


TIic  Bargain  TJicory  of  I  \  'ages. 


'!  ' 


■i  ; 


w 


III: 


) ; 


Ml 


'  i 


\M 


\  |i 


labor  questions  on  the  part  of  those  who  make  or 
mold  public  opinion.  Newspapers  and  majrazines, 
church  congresses  and  scientific  associations,  show 
the  same  tendency;  and  this  social  interest  will  un- 
doubtedly operate  more  fully  and  more  steadily  than 
it  has  done  towards  the  end  of  the  amelioration  of 
the  condition  of  the  working  classes.  But  as  yet 
public  opinion  is,  itself,  in  need  not  merely  of  being 
roused  but  also  of  being  educated.  It  will  be  edu- 
cated more  by  the  force  of  example  than  by  the  force 
of  the  precept.  The  influence  of  those  model  em- 
ployers from  Leclaire  to  Mr.  Mather,  who  have 
endeavored  in  part  to  see  labor  questions  from  the 
standpoint  of  the  laborer  himself,  is  already  begin- 
ning to  have  effect  on  public  opinion ;  and  the  in- 
fluence of  State  and  municipal  authorities  is  being 
exerted  in  the  same  direction.  The  example,  which 
is  being  set  in  many  countries  by  the  government 
and  by  public  authorities  in  establishing  an  eight 
hours  day,  as  the  United  States  government  has 
done  for  its  employees,  in  inserting  in  all  contracts 
a  clause  requiring  a  trade-union  minimum  wage  to 
be  paid  by  the  contractor  to  his  employees,  as  the 
London  County  Council  does,  or  in  suggesting,  as 
Mr.  Fowler  did,  in  1893,  when  President  of  the  Local 
Government  Board,  in  a  circular  to  local  sanitary 
bodies,  that  public  works  should  be  executed  and 
public  contracts  given  out  at  the  season  when  em- 
ployment is  otherwise  scarce — is  likely  to  create  a 
sentiment  which  will  assist  the  laborer,  and  assist 
him  in  a  manner  which  can  involve  few  of  the  dan- 


Public  Opinion  and  the  Wages  Question.      173 


gcroiis  consequences  which  generally  follow  from 
legislative  interference  with  the  course  of  industry. 
The  influence  of  this  sentiment  may  involve  some 
injustice  to  employers  who  are  not  backed  by  the 
public  funds,  but  the  laborer's  necessity  will  cease 
to  be  regarded  as  the  employer's  opportunity.  The 
ultimate  result  will  be,  through  sympathy,  a  devel- 
opment of  conscience  among  employers,  and  the 
creation  of  a  disposition  to  pay  without  compulsion 
all  that  the  laborer  is  really  worth  rather  than  merely 
what  he  can  be  forced  to  take.  The  process  of  ele- 
vating business  to  the  rank  of  a  profession,  through 
the  pressure  of  outside  opinion,  will  necessarily  be 
slow ;  but  the  sporadic  appearance  of  profit  sharing 
schemes,  in  one  form  or  other,  shows  that  the  old 
individualist  standpoint  may  be  in  time  abandoned. 


ut;j 


ill 


i    !^ 


It- 


1 1' 


CHAPTER  V. 


THE   MOBILITY   OF   LABOR. 


Ill, 


( 


Ik,  ;  (  ■ 


tiiif- 


If 


I  !:i 


h 


*f!     fl 


NOTWITHSTANDING  Adam  Smith's  classical 
caution  that  "  man  is  of  all  sorts  of  luggage 
the  most  difficult  to  be  transported,"  *  the  early 
English  economists  postulated  a  perfect  mobility  of 
labor;  and,  by  a  strange  perversion,  admitted  only 
as  a  possible  and  merely  theoretical  exception  the 
obvious  fact  of  the  immobility  of  labor  through 
custom  and  ignorance.  Mobility  was  the  method 
by  which  competition  worked  to  secure  equality  of 
wages.  It  is  probable  that,  for  these  economists, 
equality  of  wages  meant  merely  an  arithmetical 
equality,  not  an  equality  of  net  advantages,  or  a 
real  equality  of  payment  according  to  the  actual 
amount  of  work  done  as  measured  by  the  result. 
Even  those  who  reject  the  Wages-Fund  Theory 
continue  to  be  partly  influenced  by  the  artificial 
simplicity  of  the  arithmetical  ideal.  Prof.  Walker 
declares  f  that  a  difference  in  wages  which  would  be 


*  Wealth  of  Nations,  p.  31. 

f  Walker,   Wages  Question,  p.  184. 

174 


•I'' 


The  Necessity  of  Mobility, 


175 


il 
if 


sufficient  to  induce  a  man  to  cross  the  Atlantic  is 
often  insufficient  to  send  him  from  one  part  of  the 
kingdom  to  another,  ignoring,  inconsistently  for  the 
time  being,  the  fact  that  the  northern  laborer  may  be 
more  efficient  than  the  southern,  in  an  even  greater 
degree  than  the  difference  of  wages  indicates.  He 
seems  to  regard  differences  in  wages  as  proving  the 
absence  of  mobility ;  whereas  mobility  and  competi- 
tion, while  they  will  secure  the  removal  of  accidental 
differences  of  wages,  due  to  local  failures  of  the 
equation  of  demand  and  supply,  have  no  tendency 
to  level  up  the  wages  of  inefficient  workmen  to  the 
same  height  as  those  of  efficient  workmen.*  The 
facility  with  which  the  Wages-Fund  Theory  assumed 
an  arithmetical  form  possibly  predisposed  the  Theo- 
rists in  favor  of  the  arithmetical  ideal. 

The  mobility  of  labor  is  a  postulate  necessary  to 
make  the  Wages-Fund  Theory  march.  As  one  de- 
parts from  it  and  the  necessity  for  mobility,  as  a 
theoretical  postulate,  decreases,  the  defects  of  mo- 
bility, as  a  social  and  economic  ideal,  become  more 
prominent.  Those  customs  and  prejudices  which 
the  theorists  regarded  merely  as  hindrances  to  the  free 
play  of  competition,  come  to  bo  regarded  as  social 
forces  of  great  value.  Dr.  Smart,  the  English  expo- 
nent of  the  newest  theory  of  distribution,  goes  to 
the  opposite  extreme,  perhaps,  when  he  declares: 
"Physically,  labor  is  not  mobile;  historically  it  has 
never  been  mobile;  and,  ethically,  it  should  not  be 

*See  the  tables  given  in  chapter  vi.,  p.  212,  for  evidence  as  to  in- 
fluence of  mobility  to  level  up  wages  and  remove  accidental  differences. 


I 


i  i|'.| 


(i  t(' 


I  I  ! 


i 


!lii 


i 


M:ii 


I  'i 


:i"fi 


r 

m 

,11 1 


lit 

■(■' 
'if. 


■i 


176 


T/ic  Bargain  TJicory  of  Wages. 


mobile. "  *  This  terse  statement  is  possibly  too  cpi- 
^^rammutic  to  be  altogether  accurate;  but  there  is  a 
larger  measure  of  truth  in  it  than  in  the  Wages-Fund 
Theory  postulate  of  universal  mobility.  Histori- 
cally, even  the  Theorist  would  probably  admit,  labor 
has  never  been  mobile ;  and  he  might  go  so  far  as  to 
allow  that  there  are  great  hindrances,  even  at  present, 
to  the  mobility  of  labor;  but  that,  ethically,  labor 
should  not  be  mobile  is  contrary  to  his  most  cherished 
opinions.  The  change  of  views  regarding  mobility  is 
part  of  the  general  change  of  opinion  regarding  the 
whole  wages  question.  It  is  incorrect  to  say  that  at 
present  labor  is  not  in  any  degree  mobile ;  because 
the  great  characteristic  of  an  age  of  transport  is  the  in- 
creasing mobility  of  labor;  but,  at  the  same  time,  as 
the  physical  difficulties  of  transporting  the  human 
"  luggage  "  diminish,  the  ethical  objections  to  mo- 
bility increase.  While  the  difficulties  of  transport 
were  great,  only  the  more  self-reliant  and  self-de- 
pendent had  the  enterprise  to  change  their  habita- 
tion. There  was  then  no  social  danger,  but  great 
social  and  individual  benefit,  in  the  migration  of 
labor.  When,  however,  these  difficulties  of  trans- 
port no  longer  deter  the  weakest  in  character  and 
self-reliance  from  emigrating  from  one  end  of  the 
earth  to  the  other,  it  is  well  that  the  ethical  objec- 
tions to  mobility  should  be  emphasized. 

As  industrial  competition  is  probably  only  a  short- 
lived, and  not  over-beautiful,  stage  of  transition  from 
custom  to  combination,  so  mobility  is  only  a  tem- 

*  Studies  in  Economics^  p.  171. 


A  Siibstiliitc  for  Mobility. 


^77 


t- 


porary  postulate  of  the  theory  of  distribution. 
When  the  bonds  of  custom  have  been  broken,  and 
the  interests  of  the  worker  are  no  longer  safeguarded 
by  tradition  and  public  opinion,  it  is  necessary  that 
the  laborer  should  be  ready  to  follow  wherever  his 
economic  interests  calls.  It  is  practically  the  only 
way  by  which  any  measure  of  justice  in  distribution 
can  be  obtained.  As  soon,  however,  as  a  substitute 
for  migration  is  available,  all  the  ethical  objections, 
hardly  silenced  hitherto  by  the  plea  of  necessity, 
become  vociferous.  The  combination  of  labor  pro- 
vides a  substitute  for  mobility,  not  a  complete 
substitute  removing  altogether  the  necessity  of  mi- 
gration, but  doing  away  with  the  more  objectionable 
features.  Mobility  is  no  longer  the  only  and  indis- 
pensable condition  of  justice  to  the  wage  earner. 
The  trade-unions  in  the  early  stages  of  their  history 
encouraged  migration ;  but  as  they  have  grown  in 
strength  and  become  able  to  enforce  their  demands 
without  recourse  to  a  strike  they  have  modified  their 
policy.  There  is  no  longer  the  same  need  to  facili- 
tate migration  because  "  the  more  perfectly  a  trade 
is  organized  the  less  necessity  is  there  for  its  mem- 
bers to  travel  in  search  of  work."  ''^  Within  the  last 
twenty  years,  trade-union  policy  with  regard  to 
travelling  benefits  has  completely  changed.  This  is 
due  in  part  to  the  fact  that  improved  communication 
has  levelled  wages  up  so  as  to  bring  about  some 
measure  of  equality  of  net  advantages ;  and  also  in 

*  From   evidence   of   Pattern    Makers    Association  before   Royal 
Labor  Commission  (Eng.),  quoted  by  Drage,  T/ie  Unemployed,  p.  i8. 


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T'^^  Bargain  Theory  of  Wages. 


part  to  the  fact  that  the  same  cause  has  universalized 
trade  depression  when  it  occurs,  and  rendered  even 
emigration  a  futile  endeavor  to  escape  from  bad 
trade.  The  network  of  trade-unions  covers  the 
land;  and,  as  local  unions  have  been  federated  into 
national  and  international  unions,  while  govern- 
ments and  municipalities  have  organized  labor 
bureaus  and  industrial  agencies,  information  re- 
garding work  and  wages  has  become  more  definite. 
Instead  of  receiving  a  travelling  benefit,  the  trade- 
union  out-of-work  member  has  his  fare  paid  to  a 
district  where  work  may  almost  certainly  be  ob- 
tained. The  practice  has  become  obsolete  because 
organization  is  better  and  the  unions  have  definite 
reports  of  the  state  of  the  labor  market ;  and  be- 
cause as  the  necessity  of  the  policy  becomes  less 
urgent  the  social  and  ethical  objections  to  it  become 
more  convincing.  Some  unions  discarded  the  policy 
because  it  fostered  a  roving  spirit  and  degraded  the 
members:  others  have  abandoned  it  because,  as  in 
the  case  of  the  iron  founders,  it  was  made  use  of  to 
secure  a  free  holiday.  Even  from  the  narrowest 
trade-union  point  of  view,  the  policy  was  one  marked 
out  for  abolition,  so  soon  as  it  became  possible  to 
do  away  with  it.  The  object  of  trade-union  policy, 
collective  bargaining,  cannot  be  achieved  unless  a 
union  can  control  its  own  members;  and  the  rov- 
ing unsettled  spirit  which  took  possession  of  the 
professional  mendicant  as  Mr.  Howell  calls  him, 
rendered  him  less,  not  more  amenable  to  union  dis- 
cipline.    From  the  broader  point  of  view,  moreover, 


i.i      ' 


Ethical  Objections  to  Mobility. 


179 


to  which  to  some  extent,*  the  older  and  stronger 
unions  have  risen,  viz.,  that  the  moral  and  intel- 
lectual progress  of  the  workers  is  essential  even  for 
material  success,  the  policy  of  assisted  migration  is 
open  to  weighty  objections.  It  is  not  that  the  home 
and  place  attachments  are  hindrances  to  mobility 
but  that,  from  the  point  of  view  of  good  citizenship, 
these  hindrances  should  not  be  removed  but  built 
up.  Ubi  bene  ibi patria^  as  a  maxim  of  politics  or 
of  industry,  gives  us  neither  good  citizens  nor  good 
workmen.  Mobility  may  often  be  the  only  safe- 
guard of  the  interests  of  the  worker;  but  when,  by 
efficient  organization,  it  can  be  superseded  and  the 
same,  or  nearly  the  same,  benefits  achieved  without 
sending  men  forth,  homeless  wanderers  from  one 
job  to  another,  society  is  the  gainer.  There  are  still 
many  trades  and  industries  where  the  free  circulation 


*  "  At  one  time  tramping  was  systematic  and  general  ;  and  it  be- 
came a  great  nuisance,  for  many  men  merely  used  the  society  as  a 
means  for  enabling  them  to  tramp  all  over  the  country,  living  upon 
the  funds  of  the  union.  .  .  .  This  practice  has  greatly  diminished 
of  late  years ;  ...  it  so  degenerated  as  to  become  little  better 
than  a  kind  of  professional  mendicity." — Howell,  Conflicts  of  Capital 
and  Labor ^  pp.  141-142. 

Since  1S77,  "the  system  of  travelling  benefit  has  declined  more 
and  more.  It  is  discouraged  by  nearly  all  the  better  organized 
unions  throughout  the  country  and,  as  a  rule,  rightly  .0.  In  the 
London  Society  of  Compositors  and  the  Scottish  Typographical  As- 
sociation travelling  relief  has  been  abolished  for  several  years,  the 
members  receiving  a  removal  grant  to  enalile  them  to  proceed  to  an 
engagement  they  may  have  obtained  in  any  part  of  the  United  King- 
dom."—/<5iV/.,  p.  142,  n.  Cp.  also,  Drage's  TIu  Unemployed,  p. 
18,  n. 


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of  labor  is  essential  because  no  other  method  can  be, 
or,  at  any  rate,  has  been,  devised  to  secure  the  same 
result.  Where  a  trade  is  not  organized,  where  the  sup- 
ply of  workers,  in  the  unskilled  trades  especially,  is 
liable  at  times  to  be  far  in  excess  of  the  demand,  it  is 
of  vital  importance  that  every  worker  should  be  ready 
to  move  to  a  place  where  the  demand  is  greater.  As  a 
social  factor,  combination  is  preferable  to  mobility 
and,  as  an  economic  force,  not  less  powerful.  The 
same  results  may  be  achieved  by  ei^^her  method. 
Organized  trades  have  discarded  their  policy  of  en- 
couraging migration :  unorganized  trades  depend 
largely  on  mobility  for  any  improvement  in  the  con- 
dition of  labor  which  they  desire ;  and  their  trust  is 
often  justified  by  the  results.  The  wages  of  domes- 
tic servants  have  risen,  both  really  and  nominally,  as 
far,  and  as  quickly,  as  the  wages  of  any  other  class; 
and,  in  their  case,  the  rise  is  due  entirely  to  their 
mobility.  Domestic  servants  are  not  in  any  way 
organized,  unless  it  be  by  a  kind  of  tacit  combina- 
tion ;  but,  as  a  class,  they  possess  the  very  highest 
degree  of  mobility,  as  any  housekeeper  will  most  ve- 
hemently testify.  They  are"  found  "  in  everything: 
they  have  no  local  and  few  personal  attachments, 
except  of  a  transitory  nature,  to  bind  them  to  any 
particular  place :  the  demand  for  servants  exceeds 
the  supply;  and,  without  a  "  character,"  they  can 
obtain  a  situation.  The  result  is,  that  in  the  rise  of 
their  wage,  they  exhibit  the  maximum  advantages 
of  mobility;  but,  as  a  class,  are  coming  to  exhibit 
the  mental  and  moral  deterioration  in  which  exces- 


Trade  Mobility  and  Place  Mobility.  1 8 1 


sive  mobility  results.  In  the  domestic  seivant  the 
early  English  economist  might  find  his  ideal  of  the 
free  circulation  of  labor,  but  it  has  no  beauty  that 
we  should  desire  it. 

The  phrase,  mobility  of  labor,  covers  two  very 
different  kinds  of  migration  which,  ordinarily,  have 
little  to  do  with  each  other.  It  includes  the  migra- 
tion from  one  industry  or  occupation  to  another, 
which  we  may  call,  trade  mobility ;  and  migration 
from  one  district  or  country  to  another,  place  mobil- 
ity. The  former  is  undoubtedly  the  more  difficult 
and,  unlike  the  latter,  is  becoming  increasingly  more 
difficult.  The  improved  means  of  transport  and 
communication  which  rendered  place  mobility  much 
easier  have,  on  the  whole,  as  part  of  the  great 
modern  movement  towards  specialization,  helped 
to  make  trade  mobility  harder,  if  not  a  practical 
impossibility.  It  is  true  that  there  is  the  possibility 
of  exaggerating  the  restrictions  of  speciaKzation. 
Prof.  Marshall  has  shown  *  how  general  intelligence, 
in  nearly  all  industrial  occupations,  is  rising  in  im- 
portance as  compared  with  specialized  skill ;  and,  to 
the  extent  in  which  this  holds,  increasing  specializa- 
tion does  not  necessarily  imply  greater  permanence 
of  trade  boundaries.  Specialization  in  the  form  of 
localization  of  industry  naturally  destroys  migration 
from  district  to  district ;  while,  as  we  shall  see  later  in 
this  chapter,  place  mobility  has  a  certain  tendency  to 
promote  trade  mobility  where  general  intelligence  is 
more  in  demand  than  highly  specialized  skill.     When 

*  Marshall's  Principles  of  Economics,  Book  IV.,  c.  g,  passim. 


l82 


The  Bargain  Theory  of  Wages. 


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specialization  has  proceeded  so  far  that  the  market 
for  specialized  labor  is  a  local  market,  migration 
from  district  to  district  is  of  comparatively  little  im- 
portance, unless  the  worker  is  prepared  to  take  the 
step  of  changing  his  trade  at  the  same  time. 

The  early  economists  spoke  lightly  of  trade  mo- 
bility, as  if  there  were  no  real  hindrances,  as  if,  in  a 
word,  workmen  took  up,  or,  at  any  rate,  could  take 
up,  a  new  trade  every  week.  The  assumption  is 
necessary  for  the  theory,  and  they  make  it  unhesi- 
tatingly. Even  Adam  Smith,  who  has  warned  us 
that  man  is  "  of  all  sorts  of  luggage  the  most  dififi- 
cult  to  be  transported,"  *  forgets  the  significance  of 
his  own  warning,  and  assumes  that  "  the  whole  of 
the  advantages  and  disadvantages  of  the  different 
employments  of  labor  .  .  .  must,  in  the  same 
neighborhood,  be  either  perfectly  equal  or  continu- 
ally tending  to  equality  "  ;  although,  to  secure  such 
an  equality  it  would  be  almost  necessary  for  every 
workman  to  be  ready  and  able  to  change  his  trade 
at  a  moment's  notice.  Few  economists,  except 
McCuUoch,  to  whom  it  seems  to  have  been  given 
to  carry  everything  to  an  extreme,  have  gone  so  far. 
Most  have  recognized,  more  or  less  explicitly,  the 
existence  of  what  Cairnes  called  non-competing 
groups  within  which  there  may  be  perfect  mobility 
but  between  which  there  is  practically  no  migration. 
Between  the  extremes  of  Adam  Smith  and  Prof. 
Cairnes  the  truth  lies.  Unless  the  non-competing 
group  is  so  narrow  as  to  include  only  one  trade, 

♦  Wealth  of  Nations,  Book  I.,  p.  41. 


Trade  Mobility. 


183 


there  is  no  such  perfect  mobility  as  Cairnes  demands ; 
while, between  the  groups  there  may  be  little  strength 
in  the  tendency  to  pass  from  one  to  another  upwards, 
there  is  always  a  considerable  movement  downwards. 
So  far  as  adult  labor  is  concerned,  trade  mobility 
unfortunately  generally  spells  degradation  from  the 
ranks  of  the  skilled  to  the  unskilled.*  There  is 
always,  owing  to  old  age  and  infirmity  and  to  lack 
of  adaptation,  a  movement  downwards;  and,  as  the 
amount  of  work  which  can  be  done  without  any 
previous  training,  is  becoming  less,  the  degradation 
is  apt  to  be  very  sudden,  from  skilled  labor  past  un- 
skilled labor  to  casual  labor.  We  do  occasionally 
meet  men  who,  in  their  time,  have  played  many 
parts,  and  yet  have  maintained  their  grade  or  even 
risen  in  the  scale;  but,  as  a  rule,  the  measure  of 
their  total  success  is  not  such  as  to  lead  us  to  place 
much  stress  on  trade  mobility  as  an  agent  in  indus- 
trial fortune.  Even  in  America,  the  paradise  of  self- 
making  men,  the  proportion  of  those  who  rise,  is 
very  small.  A  great  many  instances  of  striking  suc- 
cess may  be  enumerated,  but  it  seems  probable  that 
the  day  of  the  self-made  man  who  rises  from  the 
ranks  is  past. 

It  is  more  than  doubtful  whether  trade  mobility 
increases  the  real  wages  of  the  migrant.  By  chang- 
ing from  one  occupation  to  another  he  may  secure 
an  immediate  advantage ;  but,  to  secure  this  advan- 
tage of  opportunity  (for  that  is  all  it  usually  amounts 
to),  he  sacrifices  the  whole  rent  of  ability  which  he 

*  But  see  later  in  this  chapter,  p.  190, 


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184 


The  Bargain  Theory  of  Wages. 


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might  have  gained  from  his  previous  training.  The 
changes  are  often,  in  the  long  run,  short-sighted.  It 
might  ahnost  be  laid  down  as  a  general  rule,  to  which 
of  course  there  are  particular  exceptions,  that  when 
an  individual  changes  his  trade  or  his  country,  after 
he  has  served  his  apprenticeship  or  completed  his 
training,  we  have  a  tolerably  certain  indication,  if 
not  of  failure,  yet  of  very  moderate  success  in  the 
new  calling.  To  seek  an  immediate  advantage  by 
the  sacrifice  of  past  training  leads  to  the  goal  reached 
by  those  whose  parents,  or  themselves,  have  been 
unable  t'^  resist  the  temptation  offered  by  the  high 
immediate  returns  from  odd  jobs.  Just  as  the  earn- 
ings of  those  who  follow  two  different  employments 
do  not  exceed  the  earnings  of  those  who  confined 
themselves  to  one,  so  men  who  pass  readily  from 
one  employment  to  another  at  the  suggestion  of  the 
slightest  immediate  advantage  seldom  succeed  ulti- 
mately in  bettering  their  position ;  for  we  must  take 
account  not  merely  of  the  earnings  of  a  week  or  a 
year  but  of  a  working  lifetime,  and  consider  the  rent 
of  ability  which  may  arise  after  years  of  patient  in- 
dustry, in  one  occupation.* 


n'i 


*  An  exception  must  be  made  in  case  of  what  may  be  called  step- 
ping-stone employments.  Very  few  of  the  men  who  enter  the  teach- 
ing profession  in  America  as  public-school  teachers  have  any  intention 
of  remaining  in  the  profession.  It  forms  a  very  convenient  means 
for  students  whose  funds  are  exhausted  by  the  expenses  of  college  to 
earn  enough  to  enable  them  to  attend  a  professional  school.  It  is 
good  for  the  young  men  that  they  should  have  an  opportunity  of 
earning  immediate  high  returns  but  is,  on  th?  whole,  very  bad  for  thQ 
Status  of  the  profession, 


The  Disposable  Fund  of  Labor, 


185 


Since  the  exposure  of  the  Wages-Fund  Theory, 
few  writers  can  be  found  to  assume  the  trade  mo- 
bility of  adult  labor.  Prof.  Cairnes  declares  that, 
within  the  non-competing  groups  mobility,  and, 
through  mobility,  equality  of  advantages,  is  secured 
by  the  existence  of  a  disposable  fund  of  young  per- 
sons annually  arriving  at  industrial  age.  In  one 
sense  the  energies  of  these  young  persons  are  at  dis- 
posal to  be  distributed  among  the  industries  which 
offer  the  largest  net  advantages;  but,  even  granting 
the  fullest  measure  of  freedom  of  industrial  choice, 
it  is  questionable  whether  the  fund  is  large  enough 
to  produce  the  desired  effect.  The  number  of  young 
persons,  annually  arriving  at  industrial  age,  does  not 
constitute  more  than  two  and  a  half,  or  three  per 
cent,  of  the  total  number  of  workers;  and,  in  the 
best  of  years,  the  trade-union  returns  show  that  as 
large  a  proportion  of  the  best  workers  of  the  country 
are  out  of  work.  Consequently,  there  is  no  industry, 
or  small  group  of  industries,  ready  and  able  to 
absorb  all  these  new  recruits  to  the  labor  army; 
and,  in  the  absence  of  a  special  opening,  the  proba- 
bility is  that  the  annual  two  or  three  per  cent,  will 
be  distributed  over  the  whole  industry  of  the 
country. 

It  is  obvious  that,  apart  from  predilections  for 
particular  occupations,  on  the  part  of  the  children 
(which  are  naturally  not  based  on  any  estimate  of 
the  net  advantages  of  the  employment),  the  disposi- 
tion of  this  fund  of  labor  depends  on  the  knowledge 
and  foresight  of  the  parents  and  on  the  sacrifices 


1 


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T/ie  Bargain  Theory  of  Wages, 


they  are  prepared  to  make.  The  knowledge  is  not 
always  sufficient;  though  most  parents  will  make 
sacrifices  for  their  children,  sufficient,  at  least,  to 
place  the  children  in  as  good  a  position  at  the  be- 
ginning as  that  at  which  they  themselves  stand. 
P'arther  tl.  m  this,  except  in  special  cases,  the  aver- 
age parent  is  not  prepared  to  go.  Here  and  there, 
we  may  find  men  who  are  endeavoring  to  place 
their  children  in  a  better  position  than  they  them- 
selves occupy.  Men  whose  ambitions  have  been 
thwarted  often  become  ambitious  for  their  children ; 
but  we  must  beware  lest  our  admiration  of  the  •  '^cri- 
fice  lead  us  to  overestimate  the  frequency  Oi  its 
occurrence.  It  is  regrettable  that,  owing  to  he 
wrong  development  of  our  educational  systems, 
these  sacrifices  are  generally  made  with  a  view  to 
secure  for  the  children  the  chances  of  a  professional 
or  semi-professional  career.  The  crowded  state  of 
the  market  for  genteel  unskilled  labor  shows  that 
knowledge  and  foresight  on  the  part  of  the  parents 
are  quite  as  essential  as  readiness  to  make  sacrifices. 
It  is  rather  on  account  of  social  position  than  on 
account  of  higher  wages  in  the  employment,  that 
sacrifices  are  made  by  the  parent ;  and  where  the  in- 
spiration of  the  hope  of  seeing  a  son  "  wag  his  heid 
in  a  poopit  "  is  wanting,  the  sacrifices  made  are  not 
very  great.  A  great  deal  of  the  labor  legislation  of 
the  last  half  century  was  passed  to  prevent  the  sacri- 
fice of  the  children  for  the  temporary  advantage  of 
the  parents ;  and  in  that  legislation  we  have  an  ob- 
jective and  unsentimental  estimate  of  how  n^uch 


Fathers  and  Sons 


187 


some  parents  arc  prepared  to  do  for  their  offspring. 
In  large  cities  probably  less  is  done  for  children  by 
their  parents  than  is  done  in  the  smaller  towns  and 
in  the  country.  In  spite  of  the  great  variety  of 
occupations  in  a  large  city,  it  is  often  difficult  to  get 
a  boy  apprenticed.  Employers  are  able  to  rely  on 
the  immigration  of  skilled  artisans  trained  in  the 
country  and  are,  therefore,  unwilling  to  take  the 
trouble  of  training  apprentices.  The  difficulty  of 
getting  boys  apprenticed  makes  parents  yield  the 
more  readily  to  what  Mr.  Charles  Booth  calls  the 
temptation  of  odd  jobs.  In  a  large  city,  pay  is 
more  strictly  according  to  the  work  done;  and  if  a 
boy  can  do  the  same  work  as  a  man  his  remuneration 
will  be  almost  as  large  as  a  man's. 

The  consequence  of  the  absence  of  customary 
wages  is  that  the  city-bred  boy  has  abundant  oppor- 
tunities of  earning  large  immediate  returns  for  labor, 
which  requires  little  more  skill  than  he  has  as  his  city 
birthright.  It  is  not  altogether  a  matter  of  wonder 
that  the  parents,  almost  disheartened  by  the  cease- 
less struggle  to  keep  a  decent  roof  over  their  heads, 
should  succumb  to  the  temptation  of  adding  such 
an  amount  to  the  family  earnings  as  will  make  the 
difference  between  ceaseless  worry  and  comparative 
content ;  even  although,  what  probably  they  do  not 
realize,  the  boy  may,  in  a  few  years,  be  left  stranded. 

Most  fathers  will  declare,  as  a  matter  of  course, 
that  they  prefer  to  bring  up  their  sons  to  any  trade 
but  their  own ;  but,  equally  as  a  matter  of  course, 
nine  tenths  of  the  disposable  fund  of  labor  will  be 


'l 


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1' ' 

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f 

Wi  «  5  1 


1 88 


T/ie  Bargain  TJicory  of  Wages. 


annually  distributed  according  to  the  trade  of  the 
fathers.  Sometimes,  as  in  country  villages,  the  dis- 
position will  be  accidental.  A  boy  is  apprenticed 
to  a  plumber  or  a  carpenter  according  as  it  happens 
to  be  the  plumber  or  the  carpenter  who  requires  an 
apprentice.  In  larger  places,  the  fact  that  vacancies 
for  apprentices  are  few,  especially  when  the  district 
has  specialized,  more  or  less,  in  one  kind  of  pro- 
duction, or  when  the  trade-union  prejudice  against 
apprentices  is  strong,  and  the  fact  that  a  father  has 
exceptional  opportunities  of  advancing  his  sons, 
afford  a  motive  strong  enough,  were  the  influence 
of  custom  and  habit  not  operative,  to  secure  that 
the  son  follows  his  father's  trade.  In  the  best 
shops,  indeed,  those  into  which  a  father  would  en- 
deavor to  introduce  his  son,  preference  is  generally 
given  to  the  sons  of  employees  when  a  vacancy 
occurs.* 

The  trade  mobility  of  labor,  whether  of  adults  or 
of  young  persons,  has  never  been  very  great.  Adults 
cannot  change  without  the  sacrifice  of  the  benefits 
of  past  training;  while  children  are  brought  up  to 
the  trade  of  their  parents  because  circumstances  are 
stronger  than  the  vague  wishes  of  the  parents.  Prof. 
Walker  asserts  that  till  the  mobility  of  the  adult  is 

*  The  first  article  in  the  regulations  of  Redouly  et  Cie.  (Ancien 
Maison  Leclaire),  Paris,  is  to  the  effect  that  "  the  sons  and  nephews 
of  the  foremen  of  the  workshops,  of  the  workmen  and  employees, 
members  of  the  noyau,  are  received  as  apprentices  in  preference  to  all 
orhex^."— Canadian  Blue  Book,  "Social  Economy"  (1889),  p.  173. 
Elsewhere,  though  the  preference  is  not  so  clearly  announced,  the 
practice  is  much  the  same. 


Effect  of  Place  Mobility  on  Trade  Mobility.    1 89 


secured  there  will  be  no  force  in  the  tendency  for 
children  to  be  apprenticed  to  trades  other  than  those 
followed  by  their  fathers.  In  view  of  the  distinction 
between  trade  mobility  and  place  mobility,  we  may 
modify  this  assertion  to  the  forr'  that  till  place  mo- 
bility has  been  secured  for  the  audt  worker,  there 
is  very  little  opportunity  of  trade  mobility  for  his 
children.  When  the  adult  worker  has  changed  his 
home,  especially  when  he  has  emigrated  to  a  new 
country  with  greater  opportunities  and  a  more  open 
career  for  talent,  the  chances  of  the  children  adopt- 
ing a  different  occupation  from  their  fathers  are 
greatly  increased.  Emigration  does  not  always 
secure  to  the  emigrant  the  benefits  he  anticipated ; 
but  it  rarely  fails  to  improve  the  chances  of  his 
children. 

Migration,  or  place  mobility,  has  a  certain  ten- 
dency to  promote  the  trade  mobility  even  of  adult 
labor — a  tendency  most  marked  in  the  case  of  emi- 
gration. Whether  the  migration  from  district  to 
district  of  the  same  country  or  from  the  rural  coun- 
ties to  the  cities  has  the  same  tendency,  is  not  quite 
clear.  The  high  returns  for  physical  strength  and 
for  trustworthiness  with  both  of  which  qualities 
country-bred  workers  are  comparatively  better  en- 
dowed than  townsmen  are,  offer  a  temptation  to 
rural  emigrants  to  a  large  city  to  forsake  a  skilled 
trade  for  an  unskilled  occupation.  There  are  many 
occupations  in  which  these  qualities  rather .  than 
technical  skill  or  alertness  are  required ;  and  conse- 
quently we  find  immigrants  in  large  numbers  in  these 


M   M 


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190 


77ic  Bargain  Theory  of  Wages. 


occupations.*  We  should  also  expect  that  the  gen- 
erally trained  labor  of  the  provinces  might,  in  many 
cases,  prove  unable  to  maintain  its  position  in  the 
highly  specialized  industries  of  i  c  metropolis:  with 
the  result  that  a  certain  proportion  of  the  emigrants 
would  seek  employment  in  the  relatively  highly 
paid  unskilled  occupation.  Full  statistics  are  lack- 
ing on  this  point,  and  those  we  have  hardly  justify 
any  conclusion.  The  figures  given  in  Booth's  Life 
and  Labor  of  the  People^  by  Mr.  H.  Llewellyn  Smith, 
show  that  out  of  a  thousand  emigrants  a  slightly 
smaller  number  of  skilled  artisans  is  found  working 
in  skilled  trades  after  migrating  to  the  town.  Out 
of  one  hundred  and  fifty-nine  skilled  artisans 
scheduled,  four  only  have  dropped  into  the  ranks  of 
the  unskilled,  while  six  of  the  total  five  hundred 
included  in  the  table,  one  of  whom,  however,  was  a 
boy  of  fifteen  when  he  migrated  from  London,  had 
risen  from  the  ranks  of  unskilled;  or  2.5  per  cent, 
of  the  skilled  artisans  have  fallen  while  1.7  per  cent, 
of  the  unskilled  have  rijen  to  the  ranks  of  skilled 
labor,  t 

*  In  December,  1888,  70  per  cent,  of  the  city  and  the  Metropolitan 
Police  (London)  were  born  elsewhere  than  in  London. — Booth's  Life 
and  Labor  of  the  People,  vol.  iii.,  p.  87.  In  one  of  the  sub-districts 
of  the  city  of  London  the  proportion  of  outsiders  is  as  high  as  46  per 
cent,  of  the  total  population  of  the  district ;  and  the  fact  is  accounted 
for  by  the  nature  of  the  occupation  of  the  permanent  portion  of  the 
population  of  the  city,  viz.,  caretaking. — Ibid.,  p.  124. 

\  Booth's  Life  and  Labor ^  vol.  iii.,  p.  140.  Five  hundred  cases 
were  actually  scheduled,  but  to  obtain  a  basis  for  comparison  one 
thousand  is  taken  (p.  140)  as  the  standard  total. 


Emigration  and  Trade  Mobility. 


191 


Emigration  seems  to  promote  trade  mobility  more 
readily  than  migration  from  the  rural  counties  to  the 
cities  does.  This  is  possibly  due  in  part  to  the  fact 
that  emigration  is  a  much  greater  change  and  creates 
a  disposition  to  make  further  changes  when  occasions 
offer  * ;  but  more  largely,  probably,  to  the  fact  that 
in  the  new  countries,  towards  which  international 
migration  is  mainly  directed,  the  division  of  em- 
ployment is  not  so  marked  as  in  older  industrial 
communities.  Consequently  general  intelligence  is 
relatively  more  important  in  a  new  country  than 
highly  specialized  ability;  while  the  greater  use  of 
automatic  machinery,  owing  to  the  dearness  of  labor, 
has  reduced  many  occupations  to  the  class  of  the  un- 
skilled, though  nominally,  they  are  still  skilled  indus- 
tries. The  relative  disadvantage  at  which  highly 
specialized  ability  is  placed  in  the  colonies  is  so 
notorious  that  the  British  Emigrants*  Information 
Office  deliberately  warns  skilled  artisans  that  the 
colonies  are  no  place  for  them. 


"  In  new  countries,  there  is  not  the  same  strong  li:,  * 
drawn  between  different  employments  and  different 
branches  of  the  same  trade,  as  in  our  own.  .  .  .  The 
more  specialized  a  man  has  become  in  his  work  and 
calling,  the  less  fitted  is  he  to  emigrate,  partly  because 
he  is  unlikely,  in  most  cases,  to  find  an  opening  in  his 
own  specialty  in  the  colonies,  partly  because  he  is  not 
suited  to  turn  his  hand  to  general  labor."  f 

♦See  chapter  iii.,  pp.  107,  loS. 

\  Report  of  Emigrants'  Information  Office,  1888. 


L: 


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192 


77/^  Bargain  Theory  of  IVagcs. 


Adaptability,  rather  than  highly  specialized  skill, 
is  the  condition  of  success  for  an  emigrant ;  and  the 
comparative  youth  of  the  emigrants  renders  them 
much  more  adaptable. 

In  spite  of  the  fact  that  the  enterprise  and  the 
adaptability  arising  from  youth  would  prepare  us  for 
some  measure  of  trade  mobility  as  a  result  of  emi- 
gration, we  are  not  quite  prepared  for  the  apparently 
enormous  amount  of  it.  Children  form  a  large  pro- 
portion of  the  total  number  of  emigrants  and  are  a 
specially  disposable  fund  of  labor.  They  are  not  in- 
cluded in  the  occupation  returns  at  the  port  of  entry ; 
while  in  later  years  they  are  included  in  the  numbers 
of  foreign-born  employed  in  various  industries.  We 
have,  however,  a  more  serious  movement  to  explain 
than  can  be  thus  accounted  for.  Many  emigrants 
must  actually  rise  in  the  standard  of  labor,  be- 
coming at  least  nominally  skilled  laborers;  for  while 
seventy  per  cent,  of  the  immigrants  at  the  port  of 
entry  who  have  had  any  occupation  return  themselves 
as  laborers,  more  than  thirty  per  cent,  of  the  total 
working  population  of  the  United  States  engaged  in 
mining,  manufacturing,  and  mechanical  pursuits  is 
foreign-born.*    The   foreign-born   formed  14.77  ^^ 

*  The  practice  now  abandoned  by  the  provincial  governments  in 
Canada  of  giving  assisted  passages  to  agricultural  laborers  probably 
made  the  percentage  of  laborers  who  entered  somewhat  greater  than 
it  really  was.  Naturally  accurate  information  is  entirely  wanting, 
but  there  are  several  complaints  from  trade-unionists  and  others  of 
mechanics  taking  advantage  of  the  assistance  reported  in  the  evidence 
before  the  Canadian  Labor  Commission.  The  deception  cannot  have 
been  carried  on  to  any  great  extent. 


Emigration  and  Trade  Mobility, 


193 


le 


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the  total  population  in  1890,  but  they  are  more  than 
thirty  per  cent,  of  the  total  engaged  in  the  skilled 
industries.  A  very  large  number  of  those  who  are 
unskilled  laborers  when  they  arrive  must  within  a 
few  years  become  skilled  or  quasi-skilled  laborers. 
The  percentages  which  are  given  below  may,  in 
some  cases,  include  the  unskilled  labor  employed  in 
eveiy  mill  and  foundry;  but,  after  every  allowance 
is  made,  the  unskilled  laborers  of  Europe  become  in 
a  short  time  skilled  laborers  in  America.  The  im- 
migrant laborer 

"  comes  ready  to  take  up  any  occupation  in  which  it  can 
earn  a  living.  I  do  not  suppose  that  the  French-Cana- 
dians when  they  come  to  the  United  States  enter  them- 
selves as  cotton-mill  operatives.  Probably  they  have 
never  seen  a  cotton  mill  in  their  lives.  They  are  only 
potentially  cotton-mill  operatives  ;  but  they  fill  up  the 
mills  just  the  same.  So  very  likely  the  Hungarians  who 
are  imported  to  dig  coal  in  the  Hocking  Valley  are  not 
miners  when  they  arrive."  * 

Although  only  an  insignificant  fraction  of  the  im- 
migrants are  skilled  laborers  when  they  arrive,  yet 
the  census  returns  show  that  thirty  per  cent,  of  the 
skilled  labor  of  the  United  States  is  of  foreign  birth. 
In  some  districts  the  proportion  is  much  higher.  In 
Minnesota  it  amounts  to  47.5  per  cent. ;  in  Wiscon- 
sin, 48.8;  in  Illinois,  43.3;  in  Michigan,  43.4;  in 
Massachusetts,  35.6;  in  Rhode  Island,  39.1 ;  in  New 

♦  Professor  Mayo-Smith's  Emigration  and  Migration,  p.  127.     I 
am  also  indebted  to  this  book  for  the  statistics  quoted  below. 
13 


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194 


T/ie  Bargain  Theory  of  Wages, 


York,  38.7;  and  in  Connecticut,  32.4.  In  some 
skilled  industries,  the  proportions  are  considerably 
in  excess  of  the  general  average  for  the  country ; 
while  the  number  of  immigrants  following  these 
occupations  at  the  time  of  entering  the  country  is 
very  small.  In  1886  there  were  only  twelve  occu- 
pations in  which  the  number  of  immigrants  exceed 
one  thousand,  and  in  many  of  these  industries  from 
a  third  to  a  half  of  the  employees  throughout  the 
country  were  of  foreign  birth.  Thus  there  were  in 
1886: 

TABLE  OF  OCCUPATIONS   OF   IMMIGRANTS  AT   PORT 
OF  ENTRY  AND  OF  FOREIGN-BORN  IN  U.  S. 

1886.  iSBo.*  1880. 

TOTAL  NUMBER        I^ERCENTAGE  OF 
OCCUPATIONS.        IMMIGRANTS.  WORKERS  WORKERS  OF 

FOREIGN  BIRTH. 

Bakers 1209   41,309  56 

Blacksmiths 1420 172,726 27 

Butchers 1190 76,241  38 

Carpenters 3678  373,143 23 

Masons 1803   102,473  35 

Shoemakers 1681   194,079 36 

Cigar  makers 1160 56,599  44 

These  are  minor  industries ;  but  in  the  larger  in- 
dustries the  proportions  are  nearly  as  high,  while  the 
number  of  entries  is  smaller.  Of  cotton-mill  opera- 
tives, forty-five  per  cent,  were  of  foreign  birth;  of 
woollen-mill  operatives,  thirty-nine  per  cent. ;  of 
paper-mill  workers,  thirty-three  per  cent. ;  of  iron 
and  steel  workers,  thirtv-six  per  cent. :  of  curriers 


*  Compendium  U.  S.  Census  Report,  1880,  table  103. 


Skilled  and  Unskilled  Labor, 


195 


and  leather  dressers,  forty-five  per  cent. ;  of  en- 
gineers and  firemen,  twenty-seven  per  cent.  Many 
of  these  industries,  it  is  true,  since  the  introduction 
of  machinery,  have  gradually  been  coming  to  have 
less  and  less  claim  to  the  title  of  skilled  trades ;  and 
it  is  probable  that  many  of  the  immigrants  become 
skilled  laborers  only  in  name.  Thus  in  1880,*  of 
133,756  tailors  and  tailoresses,  71,571,  or  more  than 
fifty-three  per  cent.,  were  of  foreign  birth,  and  the 
amount  of  skill  possessed  by  the  victim  of  a  sweater, 
though  it  may  be  sufficient  to  justify  the  title  skilled, 
is,  after  all,  not  very  great.  Mr.  Schloss  gives  us, 
from  the  evidence  taken  by  the  Lords  Committee 
on  Sweating,  an  instance  of  the  evolution  of  an  un- 
skilled emigrant  into  a  skilled  workman.  A  witness, 
Hirsch  by  name, 

"  had  been  an  agricultural  laborer  in  Russia  and  had 
come  to  England  six  months  prior  to  his  appearance 
before  the  committee.  He  presents  himself  to  a  coun- 
tryman of  his,  who  is  himself  a  journeyman  finisher  em- 
ployed by  a  sub-contractor.  '  He  gave  me  nothing  the 
first  week,  but  he  gave  me  food,  and  he  gave  me  a  shil- 
ling for  the  second  week  with  food.'  Then  Hirsch  is 
advanced  to  five  a  week  and  now  he  is  making  eight.  *  I 
start  (the  evidence  continues)  on  Sunday  morning,  com- 
mencing at  seven  and  work  up  till  ten,  and  the  other 
days  I  start  at  six  and  work  right  up  to  ten  as  well,  but 
on  Thursday  I  work  up  to  twelve  o'clock  and  on  Friday 
come  again  at  six,  then  I  work  till  sunset.'  "  f 

*  Compendium  U.  S.  Census  Report^  1880,  table  103. 
f  Schloss,  Industrial  Remuneration^  p.  iii. 


196 


The  Bargain  Theory  of  Wages. 


''. '   ) 


it 


in: 


While  emigration  undoubtedly  tends  to  raise  many- 
workers  from  the  ranks  of  the  unskilled  it  remains 
more  than  doubtful  whether  the  worker  is  really 
benefited  to  the  extent  the  classification  seems  to 
connote.  The  skilled  trades  which  he  adopts  are 
now,  only  in  name,  skilled  trades;  and  as  an  un- 
skilled laborer  his  first  condition  was  often,  not 
worse,  but  better. 

Trade  mobility,  then,  though  a  necessary  postu- 
late of  the  Wages-Fund  Theory,  has  never  been  a 
very  important  factor  in  the  determination  of  wages. 
Adult  labor  seldom  migrates  from  one  industry  to 
another;  and  where  it  does  move  the  results  are  not 
altogether  good.  Though  as  a  result  of  emigration 
large  numbers  seem  to  rise  in  the  scale  of  labor  the 
rise  is  often  merely  nominal;  and  the  amount  of 
trade  mobility,  even  under  these  circumstances,  is 
hardly  sufficient  to  bring  about  the  equality  of  net 
advantages.  McCulloch  declares  that  **  the  dis- 
crepancies that  actually  obtain  in  the  rate  of  wages 
are  all  confined  within  certain  limits — increasing  it 
or  diminishing  it  only  so  far  as  may  be  necessary 
fully  to  equalize  the  favorable  or  unfavorable  cir- 
cumstances attending  any  employment."*  To 
secure  such  a  real  equality  of  reward,  the  actual  in- 
fluence of  the  fullest  measure  of  that  trade  mobility 
which  is  so  lightly  postulated  would  have  to  be  ex- 
erted; and  our  examination  has  shown  us  that  no 
such  degree  of  mobihty  is  operative.  Place  mo- 
bility,  without  trade  mobility,  could   secure   only 

*  Principle  of  Political  Economy  {)Jl)xxx&y'^  Reprint),  p.  124, 


Place  Mobility  and  Trade  Mobility. 


197 


y 


that  within  the  limits  of  a  single  trade  there  might 
be  the  world  over  a  practical  equality  of  reward : 
without  trade  mobility  inequalities  of  returns  in 
different  trades  might  long  continue  even  were  the 
volume  of  emigration  very  large. 

Place  mobility,  though  not  theoretically  so  im- 
portant, is,  and  always  has  been,  of  more  practical 
importance  as  a  wages  factor  than  trade  mobility. 
The  migration  of  labor  from  ore  district  to  another 
is  easier  than  the  change  from  one  employment  to 
another.  The  conservative  influence  of  custom  and 
tradition  operates  against  both  forms  of  mobility; 
but,  since  a  man's  occupation  becomes  so  much 
more  intimately  a  part  of  himself  than  the  locality 
in  which  he  lives,  the  change  implied  in  trade  mi- 
gration is  so  much  the  greater  than  that  implied 
even  in  emigration.  There  are  other  sentiments 
which  color  a  man's  life  beside  his  trade  traditions 
and  attachments;  but  these — religion,  national 
sentiment  and  local  patriotism,  home  ties  and 
family  attachments — are,  in  part,  not  sacrificed  by 
emigration;  and,  when  they  cannot  be  enjoyed  in 
the  new  land,  the  sacrifice  involved  is  not  recognized 
till  months  after  the  change  has  been  made.  On 
the  other  hand,  the  dangers  and  drawbacks  of 
change  of  occupation  are  immediately  felt.  The 
dangers  are  so  obvious  that  we  may  take  it  for 
granted  that  the  change  will  hardly  ever  be  made 
without  the  fairly  sure  prospect  of  material  advan- 
tage. Sentiment  enters  less,  and  practical  advan- 
tage more,  into  the  motives  which  lead  to  change 


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I 


198 


77/r  Bargain  Theory  of  Wages. 


of  employment ;  and  as  the  organization  of  industry 
becomes  more  complex,  the  possibility  of  advan- 
tageous change  from  one  occupation  to  another 
diminishes.  The  change  involves  the  learning  of  a 
new  trade,  and,  during  the  period  of  learning,  the 
acceptance  of  a  low  rate  of  wages.  The  average 
rate  of  wages  in  the  new  occupation  may  be  higher 
than  the  rate  in  the  old ;  but  the  wages  of  a  learner 
in  the  new  cannot,  if  the  trade  be  worth  adopting, 
for  a  long  time,  be  much  more  than  the  earnings  of 
the  former  occupation.  The  advantage  sought  is 
seldom  sure  enough,  or  large  enough,  to  cover  the 
risks  of  the  change ;  and,  as  place  mobility  equalizes 
the  returns  in  a  trade  the  world  over,  there  will  be 
less  inducement  to  a  man  to  change  his  occupation 
to  escape  a  local  disturbance  of  wages. 


CHAPTER  VI. 


THE  MOBILITY  OF  LABOR  (Continued). 


BEFORE  the  Industrial  Revolution  there  was 
little  migration  of  labor:  in  part,  because  free- 
dom of  movement  was  restricted  by  poor  laws  and 
other  legislation;  but  also  because  there  was  less 
necessity  for  it.  Supply  was  more  closely  then 
than  now  governed  by  demand ;  production  being 
for  a  steady  and  a  known  market.  The  area  of  the 
market  was  limited  and  the  distinction  of  employer 
and  employed  was  not  so  definitely  drawn.  When, 
however,  the  area  of  the  market  extended  and  ma- 
chinery was  introduced,  trade  became  subject  to 
violent  fluctuations.  Demand  and  supply  are  no 
longer  in  correspondence,  and  industry  is  alternately 
inflated  and  depressed.  The  laborer  is  the  passive 
victim  of  this  want  of  correspondence.  He  is  no 
longer  the  small  master  producing  for  the  known 
market,  but  a  laborer  for  hire.  He  must  live  by  the 
reward  of  his  labor  from  day  to  day ;  and  the  fluctua- 
tions of  industry  tend,  on  the  whole,  to  depress 
wages.     The   fluctuations   are   not   offset   by   each 

199 


f 

1 

'■i 

f 

■  i 

! 

1 

1 

c 

■    i 

!=' 


)■     I 


2CX) 


T/ic  Bargain  Theory  of  Wages. 


other.  The  laborer's  remuneration  in  good  times 
is  scarcely  ever  sufficient  to  tide  him  safely  over  bad 
times  without  recourse  to  the  "  poor  man's  banker," 
or  to  credit  at  the  store;  for  in  bad  times,  despite 
the  equalizing  effects  of  machinery,  there  is  some- 
times great  lack  of  employment  in  the  district  in 
which  he  lives.  Since  the  laborer  must,  so  to  speak, 
deliver  the  labor  himself,  it  matters  little  that  work 
is  plentiful  elsewhere,  if  the  laborer  remains  where 
his  commodity  is  a  superfluity.  Consequently, 
mobility  is  a  necessity  for  the  equation  of  the  de- 
mand and  the  supply  of  labor,  or  would  be,  were 
trade  fluctuations  merely  local.  Unfortunately,  as 
the  knowledge  of  industrial  conditions  in  other  dis- 
tricts increases,  the  area  of  depression  widens.  The 
same  forces  which  have  rendered  migration  easy 
make  trade  depression  universal.  It  is  difficult, 
now,  to  imagine  any  trade  depressed  in  one  district 
and  prosperous  in  another,  as  it  might  have  been 
before  the  Industrial  Revolution.  The  improved 
means  of  communication  which  naturally  promote 
the  tendency  of  labor  to  migrate  have  equalized 
industrial  conditions  and  thus  destroyed  the  induce- 
ment. We  shall  see  below  that  the  volume  of  migra- 
tion is  decreasing  and  at  the  same  time  becoming  a 
regular  movement.  We  can  hardly  speak  of  the 
circulation  of  labor  because  the  movement  is  steadily 
in  one  direction — towards  the  cities. 

We  need  not  draw  any  rigid  distinction  between 
the  two  forms  of  place  mobility,  migration  and  emi- 
gration.    The  political  effects  are  different,  but,  in 


Migration  ami  Emigration. 


201 


essence,  the  economic  effect  is  nearly  the  same.  It 
has  generally  been  assumed  that  migration  is  a  much 
more  extensive  movement  than  emigration :  so  much 
more  extensive  a  movement  that  the  whole  orthodox 
theory  of  foreign  trade  is  based  on  the  difference. 
To  justify  the  hypothesis  of  the  economic  nation  in 
the  theory  of  international  trade  it  is  necessary  to 
assume  that  the  mobility  of  labor  within  the  nation  is 
practically  complete ;  while  between  the  nations  it  is 
practically  non-existent.  The  assumption  is  not  even 
approximately  accurate.  The  volume  of  migration 
within  the  nation  is  not  only  not  so  great  as  is  sup- 
posed, but  is  shrinking;  and  emigration  which,  it  is 
supposed,  is  not  sufficient  in  amount  to  bring  about  a 
real  equality  in  the  cost  of  production  must,  in  some 
cases,  be  a  more  powerful  industrial  factor  than  migra- 
tion. Between  the  Maritime  provinces  of  Canada  and 
the  New  England  States  the  movement  is  steadier 
than  the  movement  from  these  provinces  to  Ontario 
and  Quebec;  and  the  city  of  Boston  contains  a 
very  much  larger  number  of  "  provincialists  "  than 
Quebec,  Montreal,  and  Toronto.*     It  is  hardly  pos- 


In 
Il- 

n 


*  The  aim  of  a  protective  policy,  in  the  language  of  the  orthodox 
theory  of  foreign  trade,  may  be  said  to  be  the  identification  of  the 
economic  with  the  political  nation.  The  "National  Policy,"  as  it  is 
called  in  Canada,  therefore  included  the  improvement  of  the  internal 
means  of  communication.  The  table  of  Canadian  migration  below 
shows  that  the  effect  of  this  part  of  the  policy  is  not  appreciable,  but 
without  it  the  "  N.  P."  would  have  been  a  greater  organized  injustice 
than  it  was.  The  usual  method  was  adopted  of  compensating  one 
class  for  the  special  burden  placed  upon  it  by  placing  another  equally 
heavy  burden  upon  some  other  class  or  section  of  the  community. 


!.■ 


lir, 


m 


Ml 


4 


m  i 


SI 

( 

V 

} 

■ 

'S 

! 

f) 

'          '     J 

1 

ih'i' 

1 

202 


77/^*  /hir^di/i  Tltcory  of  IWiji^^ts. 


siblc  to  make  ii  comparison  of  the  respective  vol- 
umes of  migration  and  emigration.  The  census 
returns  of  those  countries  in  which  both  movements 
take  pkicc  are  not  detailed  enough  to  permit  a 
thorough  comparison.  For  instance,  in  the  English 
census,  the  county  is  taken  as  the  unit  area:  in  the 
Canadian  census,  the  province.  The  unit  area,  in 
either  case,  is  too  large.  Probably  the  greatest 
amount  of  migration  takes  place  within  the  unit 
area.  The  English  census  of  i88i  shows,  that  of 
8,877,623  persons  who  resided  elsewhere  than  in  the 
county  of  their  birth,  4,049,918,  or  nearly  half,  were 
resident  in  the  counties  bordering  on  their  native 
county;  and  probably  at  least  another  four  millions 
have  migrated  from  one  place  to  another  within  the 
county  of  birth.  The  same  remark  holds  true,  to 
an  even  greater  extent,  of  the  returns  of  the  Cana- 
dian census,  where  the  unit  is  the  province.  Census 
returns,  moreover,  can  take  no  account  of  successive 
removals  by  the  same  individual ;  and  ten  years  is 
a  period  long  enough  to  cover  several  changes.  The 
volume  of  migration  must,  consequently,  especially 

Thus  Nova  Scotia  received,  as  its  compensation  for  the  manufacturing 
monopoly  in  Ontario,  the  duty  on  foreign  coal  and  iron.  This  prac- 
tice has  been  found,  in  all  countries,  politically  necessary,  but  is  none 
the  less  an  impossible  and  ridiculous  method  of  distributing  the  sec- 
tional benefits  of  protection  throughout  the  community.  The  task  of 
identifying  the  political  and  the  economic  nations  in  Canada,  and 
thus  securing  a  just  distribution  of  the  gains  and  losses  of  monopoly, 
is  peculiarly  difficult  because  there  will  always  be  a  greater  movement 
between  Canada  and  the  United  States  than  between  Quebec  and  the 
English  provinces  of  Canada, 


Volumi's  Compared. 


203 


in  the  case  of  Canada,  be  much  hirgcr  than  is  set 
down  in  the  census  returns. 

Even  when  every  allowance  is  made  for  the  in- 
completeness of  the  figures,  total  migration  is  not 
so  much  greater  in  volume  than  enn'gration  as  to 
justify  the  assumption  of  the  theory  of  international 
trade.  The  total  number  in  any  given  year  of  those 
who  have  migrated,  is  not  the  same  as  the  volume 
of  migration  in  that  year;  and  it  is  the  volume  of 
migration  that  is  the  industrial  factor. 

Migration,  however,  is  not  only  of  less  compara- 
tive importance  as  an  economic  force  in  distribution 
than  is  assumed,  but  is  also  a  factor  of  decreasing, 
or,  at  any  rate,  not  of  increasing  importance.*  The 
volume  of  migration  reached  its  maximum  ten  or 
twenty  years  since ;  and  the  opening  of  new  lines  of 
communication  and  the  lessened  cost  of  transit  have 
been  apparently  without  effect  on  the  volume. 
Within  the  United  States  the  volume  of  migration 
has  not  merely  been  stationary',  but  has  sensibly 
shrunk.  This  is  due  in  part  to  the  fact  that  the 
colonizing  period  in  the  history  of  the  United  States 

♦According  to  the  British  Census  Report^  l8gi,  the  native 
population  shows  stationary  habits  of  a  very  decided  character.  In 
1871,  74.04  per  cent,  of  population  were  resident  in  native  county  ; 
in  1881,  75.19;  in  1891,  74.86. 

It  would  appear  that  though  emigration  to  foreign  countries  in- 
creased enormously  between  1881  and  1891,  there  was  no  correspond- 
ing increase  in  the  migration  within  the  borders  of  England  and 
Wales  themselves,  notwithstanding  the  increased  facilities  of  locomo- 
tion, the  extended  knowledge  possessed  by  the  working  classes  as  to 
the  conditions  of  life  in  parts  outside  their  immediate  localities. 
English  Census  Report,  1891,  vol.  iv.,  p.  61. 


204 


The  Bargain  Theory  of  Wages. 


■|! 


I 


ii 


I  is 


has  closed,  and  that  since  the  available  land  in  the 
West  has  been  filled  up  the  classic  advice,  "  Go 
West,  young  man,"  has  lost  much  of  its  appropri- 
ateness. It  is,  however,  not  merely  migration  from 
East  to  West,  or  from  State  to  State,  that  has  de- 
creased. There  is  also  less  movement  within  the 
States  and  less  movement  from  the  rural  portions  of 
the  States  to  the  cities.  The  same  phenomenon  is 
observable,  though  in  a  less  marked  degree,  in  Eng- 
land, France,  and  Canada,  as  appears  from  the  fol- 
lowing table,  which  is  taken,  so  far  as  United 
States,  France,  and  England  is  concerned,  from  an 
article  by  Prof.  Wilcox  in  The  Political  Science 
Quarterly.^ 


m 


i 


PERCENTAGE    OF    POPULATION   RESIDENT  IN   UNIT 
AREA  OF  Blirj    I  IN  CENSUS. 


ENG.  AND  WALES. 

FRAN'CE. 

.ANADA. 

UNITED  STATES. 

Year. 

Unit  Area. 
County. 

Year. 

Unit 
Area. 
Depart- 
ment. 

88.4 

85.7 
84.0 
83.2 

Year. 

Unit 

Area. 

Province. 

97-5 
96.0 

95.0 

Year. 

Unit  Area. 
State. 

I871 
1881 
189I 

74.04 

75.19 
74.86 

1866 
1876 
18S6 
1891 

1871 

18S1 
189I 

1870 
t88o 
1890 

73.8 
77.9 
79.1 

-  j 


Prof.  Wilcox  also  gives  tables  *  of  internal  migra- 
tion for  the  two  States  Massachusetts  and  New 
York,  to  demonstrate  that  not  only  inter-State  but 
also  intra-State  migration  is  declining. 

♦Vol.  X.,  No.  4. 


m.i 


Migj'ation  Declining. 


205 


PERCENTAGE  OF  TOTAL  NATIVES  OF  NEW  YORK 

RESIDENT  IN 


1855. 

County  of  birth 56.0 

Some  other  county  of  New  York  iq.9 
Some  other  State 24.2 


1865. 

1875. 

55.3  • 

...  57.8 

17.8  . 

...  16.0 

26.5  . 

. . .  26.2 

\ 


PERCENTAGE  OF  TOTAL  NATIVES  OF  MASSACHU- 
SETTS  RESIDENT  IN 

1875.  1885. 

Town  of  birth 48.61  51.00 

Some  other  town  in  Massachusetts  30.62 29.46 

Some  other  State 20.77  19. 54 


The  migration  from  province  to  province  within 
the  Dominion  of  Canada  seems  remarkably  small, 
the  reason  being  that  the  "  exodus  "  to  the  United 
States,  as  it  has  been  called,  is,  so  far  as  the  difficul- 
ties of  and  obstacles  to  movement  a.e  concerned, 
really  of  the  nature  of  a  migration  from  the  rural 
parts  of  a  country  to  the  industrial  centres.  The 
Canadian  figures  show  a  slight  increase  in  the  amount 
of  migration,  but  do  not  form  a  serious  exception  to 
the  general  tendency ;  for  the  period  covered  is  that 
in  which  the  great  railways  have  for  the  first  time 
opened  up  the  country.  The  table  on  p.  206  shows 
the  number  per  thousand  resident  in  each  of  the 
four  original  provinces  of  the  Dominion,  in  the  three 
census  years,  who  were  born  in  the  various  provinces 
of  the  Dominion. 

These  are  hardly  the  results  we  should  have  ex- 
pected.    The  period  covered  by  these  statistics  is  a 


I; 


(iff 


!i' 


,1  ■. 


1    :^ 


206 


T/ie  Bargain  Tlicory  of  Wages, 


period  of  railroad  expansion ;  great  trunk  lines  have 
been  built  and  parts  of  the  countries  which  had  been 
separated  more  completely  than  if  the  ocean  had 
rolled  between  have  been  bound  together  by  ties  of 
intercourse  and  communication.  The  re(  eipts  from 
pa.ssenger  traffic  have  increased  year  by  year  until  it 
seems  as  if  the  whole  population  were  continuously 
on  the  move.  With  improved  means  of  communi- 
cation has  come  increased  knowledc^e  of  the  con- 
ditions  of  industry  in  other  districts  and  States;  but 

THE  NUMBER  PER  THOUSAND  OF  NATIVE-BORN 
CANADIANS  RESIDENT  IN  THE  FOUR  ORIGINAL 
PROVINCES  AND  MANITOBA  ACCORDING  TO  THE 
PROVINCE  OF  BIRTH. 


iji:;. 


M  i  ' 


w 


*  \ 


%\ 


\\ 


t  :■ 


PROVINXE    OF 
RESIDENCE. 


New  Brunswick - 


Nova  Scotia. . . . 


Quebec. 


Ontario 


Manitoba. 


CENSUS 
YEAK. 


187I 
1881 
189I 
187I 


i8gi 

187I 

1881 
189I 

1871 

1881 
1891 
1871 
1881 
1891 


PROVINCE   OF   BIKTH. 


O 


J3 

3 


O.Q 
I.O 
1.1 
0.6 

0.9 

'•7 

f.2 

8.0 

II. O 


9.9 
10.7 
12.0 

0.9 

1.0 

1-3 

991-3 
989.8 

985-9 


959-5,     34.3 


960.2 
966. 1 


398.4 
431^ 


33-8 
3C-4 


83.0 
70.0 


l-H 

n 

m 

W 

9.59.5 

i  957-4 

956.2 

9-5 

'^ 

9.8* 
9-3 

q.o 
8-9*1 

21.1 

21.2 

18.4 

981.4 

10.9 

982.2 

3-9 

13-0 

981.6 

4.0 

0.8 
0.9 
1.0 

0.6 
0.6 
0.9 

0.8* 

0.4 

0.3 

2-4 

3-0 

0.9* 

1.6 

2.4 
2.7 

0.4 
0.4 

7-1 

6.6 

17.0 
12.9 

3-2 

2.1 

0.0 
0.0 
0.0 
0,0 


0.6 


375-4 
459-6 


U 


0.0 
0.0 
0.0 
0.0 


o  o 
0.0 
0.0 
0.0 


^ 

O.I 

O.I 

t 

> 

O.I 

0.0 

0.0        < 

0.0 

0.0        ( 

0.1 

0.0 

0.0 


O.I 
O.I 


0.5 

o.Si 


»33-7 
7.2 


I 

i 

t 

1 

! 

r 

1' 

i 

T 

i     ■■ 

1 

ii  i 

1 

J  • 

1 

1 

Ul 

..  i 

♦  Including  natives  of  Newfoundland. 


Modern  Restrictions  on  Mobility, 


207 


o 
o 


migration  seems  to  have  reached  a  maximum  just 
when  it  was  being  rendered  easier. 

The  result  is  somewhat  surprising.  There  is 
ahnost  complete  freedom  of  movement  permitted. 
The  laborer  is  no  longer  hampered  in  his  movements 
by  laws  of  settlement,  but  may  move  wherever  and 
whenever  he  thinks  fit.  In  some  places  old  mediaeval 
ideas  restricting  the  right  of  migration  have  survived 
or  been  revived  and  enforced.  The  conservative 
reaction  in  Germany  reveals  itself  in  proposals  to 
restrict  the  migrations  of  the  agricultural  population. 
East  Prussia  has  been  drained  of  a  large  part  of  its 
agricultural  labor;  and  the  organs  of  the  great  land- 
owners demand  renewed  restrictions  on  the  pretext 
that  so  long  as  free  migration  is  permitted  there  can 
be  no  adequate  check  to  the  spread  of  epidemics. 
The  modern  demands  for  restriction,  however,  come 
chiefly  from  the  working  classes.  America  for  the 
Americans,  Canada  for  the  Canadians,  London  labor 
for  London  laborers,  are  cries  which  demand  restric- 
tion of  migration,  in  fact,  if  not  in  law.  It  is  fre- 
quently little  more  than  a  sentiment ;  but  in  demo- 
cratic countries  the  sentiment  is  sometimes  embodied 
in  legislation.  In  Canada,  there  has  been,  in  places, 
a  reincarnation  of  mediaeval  ideas  regarding  the 
right  of  movement.  In  Fredericton  and  St.  John, 
N.  B.,  and  elsewhere,  a  tax  of  twenty  dollars  is 
levied  upon  imported  labor.  The  argument  is  that  it 
is  not  fair  that  those  who  reside  in  the  city  and  pay 
their  proper  share  of  the  taxes  should  be  exposed 
to  the  competition  of  outsiders  who  may  come  in, 


!l 


i 


208 


The  Bargain  Theory  of  Wages. 


\: 


m 
■I ' » ■ 


II! 


1  ,v 


i' 


I 


1   f. 


<l| 


i 

t 

1 

1 

LJ 

1 

earn  wages,  and  depart  without  ever  being  domiciled 
in  the  city  and  subject  to  taxation.  In  the  spring 
of  1896,  there  was  a  dispute  in  St.  John  between 
the  Ship-Laborers'  Union  and  the  managers  of  the 
Donaldson  Line  of  steamers.  The  managers  refused 
to  grant  the  Union  demand  for  higher  wages  and 
imported  a  trainload  of  men  from  Montreal,  which 
was  then  icebound.  After  partial  failure  of  the 
attempt  to  bring  the  "blacklegs"  "out,"  the 
Union  threatened  to  have  the  city  by-law  enforced. 
There  was  some  talk  of  appealing  to  the  courts 
against  the  by-law,  which,  it  was  claimed,  was  a 
violation  of  the  British  North  America  Act ;  but  no 
further  steps  *  were  taken,  and  the  result  was  a 
victory  for  the  Ship-Laborers'  Union. f 

The  growing  strength  of  local  patriotism, combined 

*  Since  the  above  was  written  the  city  by-law  of  St.  John  has  been 
amended,  and  the  tax  or  license  fee  paid  by  non-resident  labor  has  been 
reduced  to  seven  dollars  and  a  half,  or  about  a  dollar  more  than  a 
laborer  pays  for  his  poll  tax. 

f  The  Contract-Labor  Law  in  the  United  States  is  an  instance  of 
the  same  tendency,  although  the  object  of  this  measure  is  to  restrict 
the  right  of  immigration  ;  but  the  Corliss  bill  may  be  classed  as  a 
measure  whose  object  was  really  to  restrict  the  right  of  migration. 
The  measure  proposed  to  forbid  dny  man  from  earning  wages  in  the 
United  States  who  did  not  reside  there.  It  is  to  be  hoped  that  the 
advocates  of  the  measure  did  not  base  their  support  of  it  upon  the  ac- 
curacy of  a  petition  in  favor  of  it  presented  by  citizens  of  the  United 
States  living  close  to  the  Canadian  border.  The  petition  averred  that 
between  two  and  three  hundred  thousand  Canadians  crossed  the  border 
every  morning  and,  after  earning  the  higher  rate  of  wages  in  the  States, 
crossed  back  again  at  night  to  their  Canadian  home — a  number  which 
probably  exceeds  the  total  population  of  Canada  living  within  five  miles 
of  the  border  line. 


TJic  Causes  of  Decline  of  Migration.         209 


with  the  increasing  political  power  of  the  working 
classes,  has,  of  late  years,  tended  to  reduce  the  vol- 
ume of  migration,  but  hardly  sufficiently  to  account 
for  the  diminution  exhibited  in  the  tables  given 
above.  The  decline  of  migration  is  possibly,  also, 
in  part  due  to  the  increasing  tendency  towards  locali- 
zation of  industry.  Where  an  industry  is  strictly 
localized,  migration  offers  no  escape  from  trade  de- 
pression ;  and,  although  it  sometimes  appears  as  if 
an  industry  were  localized  in  more  districts  than  le, 
yet,  on  examination,  the  industry  is  seen  to  be  two 
or  three  different  industries  included  under  the  one 
name.  The  localization  of  industry  promotes  the 
organization  of  labor  in  trade-unions ;  and  we  have 
seen  that  the  trade-unions,  if  they  do  not  positively 
discourage,  certainly  no  longer  encourage  the  migra- 
tory tendency  by  travelling  benefits.*  In  one  way 
the  union  undoubtedly  does  promote  migration  in- 
directly. The  standard  wage  is  higher  in  the  cities 
than  in  the  country,  and  the  best  workers  seek  the 
centres  of  population  and  industry;  while  those  who 
are  unable,  from  any  cause,  to  earn  the  standard 
wage  in  the  metropolis  and  find  it  difficult,  on  ac- 
count of  the  trade-union  antipathy  to  a  system  of 
graded  wages,  to  obtain  any  employment,  tend  to  mi- 
grate to  the  provinces. 

Again,  if  it  be  true  that  a  larger  proportion  of  the 
working  classes  are  aiming  at  owning  their  own 
houses,  this  would  undoubtedly  tend  to  hinder 
migration.      The   evidence  is  too   fragmentary   to 

*  Chapter  V.,  p.  179. 


I^^l 


210 


The  Bargain  Theory  of  Wages. 


\\ 


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allow  us  to  decide  whether  they  do  so  aim.  If  they 
do,  we  need  not,  as  some  writers  and  speakers,  regret 
the  tendency.*  Mobility  does  not,  on  the  whole, 
tend  to  promote  good  citizenship.  Ownership  un- 
doubtedly implies  greater  fixity,  and  in  so  far  as 
every  trade,  and,  in  a  special  degree,  localized  trades, 
are  still  subject  to  local  variations,  fixity  of  residence 
may  imply  fluctuations  in  wages  and  employment. 
On  the  other  hand,  when  trade  revives,  the  man  on 
the  spot  is  likely  to  reap  the  immediate  benefits.  A 
priori,  we  might  conclude  that  mobility  will  secure 
an  arithmetical  equality  of  wages  and  employment ; 
that  the  wages  of  those  who  reside  permanently  in  a 
district  will  fluctuate  more  according  to  the  state  of 
trade,  and  that  their  average  will  be  higher  than  the 
average  of  those  who  move  from  place  to  place ;  and 
this  rt:/n<?r/ conclusion  is  supported  by  the  following 
comparison  of  the  two  classes  of  owner  occupiers 
and  tenant  occupiers  in  respect  of  wages  and  days 
employed  in  the  year,  which  is  taken  from  the  report 
of  the  Ontario  Bureau  of  Industries  for  1889.  The 
comparison  covers  a  sufficiently  wide  area  to  secure 
that  accidental  variations  do  not  much  influence  the 
results.  In  1888  returns  were  received  from  576 
owner  occupiers  resident  in  twenty-one  towns  in 
different  parts  of  the  province,  and  in  1889,  842. 
The  tenants  in  1888  numbered  1272,  and  in  1889, 
1634.  Another  class  is  included  in  the  first  table, 
viz.,  boarders,  but  the  number,  forty,  is  too  small  to 

*  See  the  reference  to  Bishop  Fraser  of  Manchester,  in  Price's 
Industrial  Peace y  p.  114. 


Tenants  and  Ozvncrs. 


211 


k 


admit  any  inference.  The  boarders,  probably,  are 
found  mainly  in  the  larger  towns  where  the  average 
wage  is  comparatively  high. 

COMPARATIVE  TABLE  OF  EARNINGS  AND  DAYS  EM- 
PLOYED IN  THE  YEAR  1S89,  FROM  RETURNS  MADE 
BY  MALE  WORKERS,  OVER  SIXTEEN,  WITH  DE- 
PENDENTS. 


STATUS. 


NUMBER  OF 
RETURNS. 


DAYS  EMPLOYED 
IN  YEAR. 


TOTAL  EARNINGS, 

INCLUDINC    THOSE 

OF  DEPENDENTS. 

Owners 842 272.06 $467.67 

Tenants 1634 269.34 449-33 

Boarders 40 265.80 450.93 

The  second  table,  with  the  accompanying  diagram, 
is  intended  to  show  the  local  and  temporary  varia- 
tions of  wages  and  time  employed,  of  each  of  the 
two  classes  in  the  two  years  1888  and  1889.  The 
average  of  wages  and  time  employed  therein  set 
dawn  is  the  average  of  the  two  years,  not  of  1889 
alone,  as  in  the  first  table. 

We  find  from  the  comparison  (i)  that  for  the 
tenant  occupiers  there  are  fewer  fluctuations  above 
or  below  the  average  cither  in  respect  of  wages  or 
of  the  number  of  days  employed  during  each  year: 
from  which  we  may  conclude  that  the  greater  the 
mobility  of  labor  the  stronger  the  tendency  towards 
an  arithmetical  average.  We  find  (2)  that  the  aver- 
age wage  of  the  owner  and  the  average  of  the  num- 
ber of  days  employed  are  considerably  higher  than 
the  corresponding  average  for  the  occupier;  from 
which  we  may  justly  conclude  that  permanence  of 


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Levelling  Up. 


213 


residence,  which  is  admittedly  desirable  from  a 
social  and  ethical  point  of  view,  is  not  an  economic 
drawback.  We  may  therefore  dismiss  the  fears  of 
many  philanthropic  economists  and  publicists  that  if 
the  working  classes  own  the  houses  they  live  in,  they 
must  necessarily  be  in  a  worse  position  as  bargainers 
in  the  labor  market.* 

The  real  cause  of  the  diminution  in  the  volume  of 
migration,  to  which  the  social  phenomena  already 
mentioned  are  only  contributory  causes,  is  that,  im- 
provement of  the  means  of  communication,  which, 
at  first  sight,  seems  to  facilitate,  does  not  really  en- 
courage migration.  The  improved  means  of  com- 
munication have  levelled  wages  up  to  such  an  extent 
that  differences  in  wages  are  no  longer,  to  a  large 
extent,  at  least,  accidental,  but  in  a  measure  corre- 
spond with  differences  in  efificiency  and  with  differ- 
ences in  the  cost  of  living.  The  decrease  in  the 
volume  of  migration  does  not  mean  a  slackening  of 
competiton.  The  influence  of  competition,  on  the 
contrary,  has  outstripped  the  actual  mobility  of 
labor.     As  between  good  players  the  game  is  often 

-'•  '"ht-n.  IS.,  '■'■:>.  some  places,  a  conviction  among  the  working  classes 
thirst  x  iab'i. ,»  ..ho  owns  his  house  is  at  the  same  disadvantage  as  the 
laborer  who  is  compelled  to  live  in  a  house  provided  and  owned  by 
his  employer,  and  sometimes  at  a  worse,  for  a  company  tenant  is 
generally  preferred  when  work  is  scarce.  In  a  small  town  the  laborer 
may  be  practically  at  the  mercy  of  an  unscrupulous  employer,  and, 
though  the  cases  may  be  few  in  which  such  an  unscrupulous  use  of 
power  is  made,  when  such  an  abuse  occurs  a  grave  social  crime  is 
committed.  Cp.  on  this  point  Report  of  Connecticut  Labor  Bureau, 
1885,  pp.  84,  85. 


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214 


T/ic  Bargain  Theory  of  Wages. 


decided  by  a  show  of  cards,  so,  without  recourse  to 
the  actual  step  of  migration,  competition  has  levelled 
wages  up  and  removed  the  necessity  of,  and  induce- 
ment to,  migration.  The  knowledge  that  change  is 
always  possible  has  at  the  same  time  weakened  the 
desire  for  change  and  the  economic  need  of  mobility. 
Mr.  Garnier  declares  that,  in  England  at  least,  what- 
ever may  be  the  case  in  Scotland,  the  system  of 
yearly  hiring  of  agricultural  laborers  induces  more 
men  to  wander  from  master  to  master  at  the  annual 
hiring  fairs  th?,n  a  system  of  weekly  contracts  does. 
"  The  weekly  contracts  with  their  cottage  laborers, 
strange  to  say,  seem  to  promote  more  settled  habits. 
These  latter  men,  feeling  that  they  can  leave  if  they 
choose,  elect  to  stay."  ^  Similarly,  the  knowledge 
that  the  Bank  had  power  to  suspend  the  Bank 
Charter  Act,  has  twice  allayed  a  panic  without  the 
necessity  of  actual  suspension.  Competition  acts  on 
the  minds  of  men;  and  the  same  results  may  be 
achieved  either  by  actual  display  of  power  or  by  the 
knowledge  that  the  power  is  there  if  need  arise. 
One  instance  must  suffice.  The  amount  of  migra- 
tion f  between  Ontario  and  Quebec  is  not  very  great, 
and,  since  the  majority  of  the  migrants  are  resident 
in  a  few  border  counties,  is  actually  less  than  it 
appears,  yet  there  has  been  a  steady  levelling  up  of 
the  average  wages  earned  in  Quebec  to  the  average 
earned  in  Ontario.  If  we  take  the  average  wage  in 
Ontario  in  each  of  the  three  census  years  1871,  1881, 

*  Gamier,  Annals  of  the  British  Peasantry,  p,  415. 
f  Cp.  table,  p.  206. 


Migration  an  Economic  Movement. 


215 


1 89 1,  as,  in  each  case,  equivalent  to  one  hundred, 
the  corresponding  averages  for  Quebec  are  as  fol- 
lows *  : 


ONTARIO.  QUEBEC. 

1871 100 73 

1881 100  83 

189I 100  90 

So,  if  migration  is  decreasing  in  volume,  and  mobil- 
ity is  no  longer  the  important  wages  factor  it  has 
been  conceived  to  be,  the  result — competition — is 
still  being  accomplished. 

Migration  arises  from  a  more  purely  economic 
motive  than  emigration.  The  volume  of  emigrants 
from  Europe  is  still  swelled  from  year  to  year  by 
those  whose  motives  for  changing  are  political  or 
social,  or,  at  times,  even  religious.  The  political 
motive  is  almost  entirely  absent  as  an  incentive  to 
migration,  though  social  motives  may  induce  many 
to  seek  the  large  cities.  There  can  be  no  doubt 
that  all  "  that  makes  the  difference  between  Mile 
End  fair  on  a  Saturday  night,  and  a  dark  and 
muddy  country  lane  with  no  glimmer  of  light  and 
with  nothing  to  do,"  f  has  something  to  do  with  the 
volume  of  migration;  but,  in  the  main,  migration  is 
an  economic  movement  undertaken  with  a  deliberate 
idea  of  bettering  the  material  condition.  There  are 
elements  in  the  movement  which  are  not  economic. 

*  Census  of  Canada,  1891,  Bulletin  xviii.,  p.  8. 
f  H.  Llewellyn  Smith,  Booth's  Life  and  Labor  of  the  People  vol, 
iii.,  p.  75  :  cp.  Life  in  Our  Villages,  Chapter  I, 


H^ 


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1,1 


2l6 


The  Bargain  Theory  of  Wages, 


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ii  I 


%\ 


I! 'Mil: 


There  is  the  drift  of  the  tramps  and  the  beggars  and 
the  characterless  to  the  great  cities  where  odd  jobs 
and  charity  and  oblivion  may  be  found.  The  move- 
ment of  women  is  only  partly  due  to  economic 
causes;  and  women  form  the  majority  of  those  who 
migrate.*  The  general  direction  of  the  economic 
movement  has  been  the  rural  districts  to  the  cities, 
though  there  has  also  been  a  reverse  movement 
back  to  the  country.  The  volume  of  the  migration 
from  the  towns  to  the  country  (not  including  in  this 
volume  the  great  modern  movement  of  population 
towards  the  suburbs  of  the  cities)  cannot  be  great 
since  it  is  a  movement  of  the  old  and  the  successful. 
As  the  young  and  vigorous  move  towards  the  towns 
where,  though  the  cost  of  living  is  high,  wages  are 
proportionately  as  high  and  seem  higher:  so  the  old, 
who  have  retired  from  active  work,   move  to  the 

*  The  limited  number  of  employments  open  to  women,  and  the 
localization  of  most  of  these  within  narrow  areas,  have  tended  to  in- 
crease the  volume  of  female  migration.  The  excess  of  females  in 
textile  towns  is  not  due  to  an  exodus  of  the  males,  but  to  migration 
from  the  surrounding  districts  of  families,  the  majority  of  the  children 
in  which  are  girls.  The  practice  of  depending  in  part  for  the  family 
support  on  the  supplemental  earnings  of  the  regular  or  casual  work 
of  the  wife  and  children  sometimes  checks  migration  from  the  districts 
where  there  is  a  demand  for  female  labor  and  generally  promotes  migra- 
tion to  such  a  district.  A  laborer  who  counts  on  these  supplemental 
earnings  may  not  always  follow  his  own  individual  economic  advantage 
and  go  where  there  is  the  greatest  demand  for  his  labor  ;  because  in 
the  new  locality  his  wife  and  daughters  could  find  no  employment. 
On  the  other  hand,  he  may  move  to  a  district  where  the  demand  for 
his  labor  is  less  in  order  to  find  employment  for  a  growing  family  of 
daughters, 


T 


Migration  to  Cities  an  Adult  Movement.      217 


country  to   take   advantage   of   the   lower  cost   of 
living. 

The  movement  towards  the  cities  is  an  adult  move- 
ment. Under  modern  industrial  conditions  the 
system  of  apprenticeship  is  breaking  down  and  no 
substitute  has  yet  been  found.  It  has  broken  down, 
however,  only  in  the  large  cities  and  industrial  cen- 
tres. In  the  workshop,  in  the  country  village,  the 
apprentice  is  still  faithfully  taught  the  whole  art  and 
craft  of  his  trade;  and  he  learns  not  a  special  de- 
partment, but  the  whole  trade  as  it  could  not  pos- 
sibly be  learned  in  a  large  city,  even  in  shops  where 
apprentices  are  taken.  The  demand  for  trained 
artisans  in  the  cities  is  great ;  and,  since  in  the  city 
workshops  apprentices  are  no  longer  trained,  the 
demand  must  be  met  from  the  outside.  The  move- 
ment to  the  cities  is  produced  by  **  suction  from 
within"  rather  than  by"  pressure  from  without." 
It  is  not  because  trade  is  depressed  in  the  country 
but  because  the  demand  is  so  great  in  the  town  that 
the  number  of  trained  workmen  migrating  to  the 
cities  is  so  large.  If  the  town  were  not  recruited 
from  the  country,  industry  would  languish  and  fail. 
The  conditions  of  town  life  are  so  debilitating  that 
were  it  not  that  the  city  population  is  being  contin- 
uously invigorated  by  the  infusion  of  fresh  country 
blood  the  cities  would  soon  become  industrially  in- 
effective. The  economic  debt  v/hich  the  cities  owe 
to  the  rural  districts  is  incalculable.  They  receive 
the  flower 'of  the  industrial  army.  The  great  pro- 
portion of  the  migrants  to  the  city  are  between  the 


ft 


'"■■'■■  \ 

i  ! 
1J> 


2l8 


The  Bargain  Theory  of  Wages. 


i        ! 


;!;< 


y  i 


ages  of  fifteen  and  thirty.'^'  London  receives  such  a 
number  of  migrants  between  these  ages  that  the 
percentage  of  her  population  between  these  Hmits  is 
much  higher  than  the  corresponding  percentage  for 
the  whole  country.  The  migrants  are,  as  might  be 
expected,  markedly  successful.  The  poverty  in  the 
various  districts  of  London  is  almost  in  an  inverse 
ratio  to  the  proportion  of  provincials  resident  in  the 
district.  Where  the  dark  colors  are  laid  down  in 
Booth's  map  of  London  poverty,  there  is  resident 
only  a  very  small  percentage  of  immigrants  from  the 
country.  The  reason  is  that  the  migrants  are  picked 
men,  and  in  competition  with  city-bred  labor,  can 
easily  secure  the  best  positions.  The  percentage  of 
failures  amongst  them  is  surprisingly  small. 

Mr.  Ravenstein  has  put  forward  a  law  of  the  move- 
ment which  he  calls  the  law  of  migration  by  stages. 
He  found  that,  according  to  the  English  census 
returns,  the  amount  of  migration  ,vas,  roughly, 
inversely  as  the  distance  of  the  migrants  from  their 
counties  of  birth;  and,  from  this  fact,  he  drew  the 
conclusion  that,  in  spite  of  the  great  attractions  of 
large  cities,  the  set  of  migration  is  rarely  directly 
and  immediately  to  them.  The  migrant  seems  to 
approach  gradually,  resting  by  the  way  to  make  surer 
of  his  footing,  and,  as  it  were,  to  hesitate  before 

*  It  is  significant  that  eighty-three  per  cent,  of  the  failures  occur 
among  those  who  left  their  homes  after  reaching  the  age  of  twenty- 
five.  Both  for  the  migrant  and  the  emigrant  twenty- five  seems  to  be 
the  limit  age  for  which  success  is  possible.  After  that  year  the  in- 
dividual seems  to  lose  the  energy  and  the  adaptability  which  arq 
essential. 


Migration  by  Stages. 


219 


making  the  plunge.  Many  never  reach  the  destina- 
tion, but  remain  at  some  of  the  intermediate  stages. 
Short-distance  migration  is  much  more  frequent  than 
long-distance  migration.  Mr.  Llewellyn  Smith* 
has  ingeniously  illustrated  and  supplemented  Mr. 
Ravenstein's  theory  by  dividing  England  and  Wales 
into  a  series  of  rings  of  counties,  in  a  roughly  semi- 
circular arrangement  round  London,  to  show  how, 
the  greater  the  distance,  the  smaller  the  number  of 
migrants  to  London.  The  results  are  given  in  the 
following  table: 


RING. 


AVERAGE  DISTANCE 
FROM  LONDON. 


1  23.8  miles 

2  52.5      " 

3  -^^-9     " 

4  .0     " 

5  175.7     '* 

6  236.9     " 


NUMBER  OF  PERSONS  PER  lOOO 

OF  POPULATION  OF  EACH 

RING  LIVING  IN  LONDON. 

166.0 

I2I.4 

61.2 

32.0 

l6.2t 

24.9 


As  a  further  illustration  of  Mr.  Ravenstein's  law, 
Mr.  Smith  shows  that  the  average  age  of  the  migrants 
from  the  more  distant  rings  is  higher  than  the  aver- 
age age  of  those  who  come  from  the  home  counties. 
If  long-distance  migration  takes  place  by  stages  it  is 
obvious  that  the  age  of  the  long-di.stance  migrant 
will  be  somewhat  above  the  average  age  of  the 
migrants  when  he  reaches  London. 


I'  ii^ 
I.    ■ 


*  Booth,  op.  cit.,  vol.  iii.,  p.  67  ;  see  also  ibid,.,  p.  126. 
f  The  figures  here  show  the  disturbing  influence  of  the  attraction 
of  the  manufacturing  centres  of  Lancashire  and  Yorkshire. 


i 


220 


The  Bargain  Theory  of  Wages. 


RING. 


■  \ 


il: 


In  i'f 

1 1  •!  - 


s  ., 


I';. 


PERCENTAGE  OF  MIGRANTS 
UNDER  TWENTY. 


DISTANCE. 


I 
2 
3 

4 
5 
6. 


22.4 
18.1 

16.8 

15.4 
19. 1 

15.9 


DITTO  OVER 
TWENTY. 

. .     77-6 23.8 

...    81.9 52.5 

.  ..    83.2    90.9 

.  ..    84.6 126.0 

•  ..    80.9* 175.9 

...    84.1    236.9 


The  law  of  migration  by  stages  must  be  slightly 
modified  to  take  account  of  facilities  of  access  and 
travel.  There  is  a  larger  proportional  fnovement 
from  Scotland  to  London  than  from  Scotland  to 
Birmingham  or  Leeds.  London  seems  much  nearer 
than  Birmingham  and  its  attraction  is  much  more 
actual.  In  general,  where  there  is  communication 
by  water  there  will  be  a  relatively  greater  migration. f 

The  exodus  from  the  Maritime  provinces  of  Canada 
has  most  of  the  characteristics  of  a  migration.  The 
emigrants  go  to  a  country  where  their  own  language 
is  spoken  and  the  same  customs  are  observed ;  and 
the  direction  of  the  movement  is  towards  the  large 
cities.  In  this  case  the  law  of  migration  by  stages 
is  again  partially  set  aside  on  account  of  facilities  of 
access.     The  migration  is  not  to  the  State  of  Maine, 

*  The  figures  here  show  the  disturbing  influence  of  the  attraction 
of  the  manufacturing  centres  of  Lancashire  and  Yorkshire. 

f  The  greater  proportion  {i.  e.,  of  migrants  to  London),  consider- 
ing distance,  is  that  shown  by  Devonshire,  Somerset,  Dorset,  and 
Cornwall,  which  collectively  send  24.7  per  cent,  of  their  migrants 
into  London.  Here  the  geographical  situation,  giving,  practically, 
only  one  degree  of  freedom  of  movement  to  the  migrant,  is  doubtless 
a  gre.it  operative  cause.  In  general,  it  will  be  found  that  a  dispropor- 
tionate amount  of  migration  takes  place  to  London  from  counties 
with  a  seaboard.     Booth,  op.  cit.,  vol.  iii.,  p.  72. 


Distribution  of  Canadian  Immigrants.       221 


which  geographically  lies  nearest  to  the  Maritime 
provinces,  but  to  the  State  of  Massachusetts.  In 
the  State  of  Maine  are  found  52,076  Canadians;  in 
the  State  of  Massachusetts  207,601. 

The  distribution  of  Canadians  in  the  United  States 
is  as  follows : 

North  Atlantic  division 490,229 

South  Atlantic  division 5.412 

North  Central  division 401,660 

South  Central  division 8,153 

Western  division 75.484 

United  States 980,938 

The  migration  to  three  of  those  divisions  is  too 
small  to  be  governed  by  any  discoverable  law  except 
the  law  of  health-seeking.  Fully  one  fifth  of  the 
Canadians  in  the  South  Atlantic  division  are  resident 
in  Florida ;  and  more  than  a  third  of  those  resident 
in  the  South  Central  division  have  sought  Texas  to 
prolong  their  days.  In  the  Western  division  26,028 
have  fled  to  California  frorr  the  rigors  of  the  Cana- 
dian winter.  The  details  of  the  other  two  divisions, 
according  to  States,  give  rather  contradictory  re- 
sults. The  attraction  to  the  North  Atlantic  division 
is  towards  the  industrial  and  manufacturing  States, 
which  are  as  different  as  possible  from  the  Maritime 
provinces  of  New  Brunswick,  Nova  Scotia,  and 
Prince  Edward  Island.  New  York  and  Massachu- 
setts together  absorb  three  fifths  of  the  total  migra- 
tion. In  the  North  Central  division,  on  the  other 
hand,  the  attraction  is  mainly,  if  we  except  Illinois, 
in  which  is  Chicago,  and  Ohio,  to  States  where  the 
main  employment  is  in  agriculture  or  lumbering; 


r-  iiS 


k 


if?) 


fit 


i  I'l*.  ■ 

li' 


\v  '< 


,,  I, 


ii! 


{ 


,: :  1  . 

L, 

222 


77/^  Bargain  TJicory  of  Wages. 


and  in  neither  case  do  the  nearest  States  to  the  Cana- 
dian centres  of  population  absorb  anything  hke  the 
share  they  should,  if  the  law  of  migration  by  stages 
were  unconditionally  true.  Michigan,  it  is  true,  is 
immediately  contiguous  at  one  point  with  the  prov- 
ince of  Ontario;  but  30,466,  out  of  a  total  181,416 
Canadians,  have  travelled  across  the  breadth  of  On- 
tario from  Quebec  to  reach  the  lumber  woods  of 
Michigan.  The  fact,  however,  that  Ohio  absorbs 
more  than  three  times  as  many  Canadians  as  Indi- 
ana; that  Wisconsin  has  twice  as  many,  and  Minne- 
sota two  and  one  half  times  as  many  as  Iowa;  that 
North  Dakota  has  two  and  one  half  times  as  many 
as  South  Dakota,  and  as  many  as  Nebraska  and 
Kansas  taken  together;  while,  in  the  Western  divi- 
sion, in  spite  of  equal  facilities  of  access  by  sea  from 
British  Columbia,  Washington  has  attracted  three 
times  as  many  as  Oregon,  which  lies  directly  to  the 
south  of  it,  seems  to  give  some  support  to  Mr. 
Ravenstein's  law. 


NORTH  ATLANTIC  DIVISION. 

Maine 52,076 

New  Hampshire 46,321 

Vermont 25,004 

Massachusetts 207,601 

Rhode  Island 27,934 

Connecticut 21,231 

New  York 93.193 

New  Jersey 4,698 

Pennsylvania 12,171 

Total 490,229 


NORTH  CENTRAL  DIVISION. 

Ohio 16,575 

Indiana 4,954 

Illinois 39.525 

Michigan 181,416 

Wisconsin 33,163 

Minnesota 43, 580 

Iowa 17,465 

Missouri 8,525 

North  Dakota 23,045 

South  Dakota 9,493 

Nebraska 12,105 

Kansas 11,874 

Total 401,660 


Temporary  Migration. 


223 


1 


1,660 


In  addition  to  tlic  migration  already  discussed, 
there  is  a  kind  which  does  not  appear  in  the  census 
tables;  because  the  migrant  does  not  seek  a  domi- 
cile in  the  district  into  which  he  moves.  His  sojourn 
there  is  for  the  season  ;  and,  at  the  end  of  the  season, 
he  returns  to  his  old  home.  This  kind  of  migration 
represents  the  maximum  of  economic  mobility.  The 
individual  sometimes  travels  very  far  afield  in  search 
of  employment.  Some  trades  are  subject  to  periodi- 
cal migrations  and  labor  circulates  freely  between 
different  parts  of  the  country.  The  seasons  in  which 
trade  is  brisk  are  sometimes  different  in  different 
parts  of  the  country.  There  is,  for  instance,  a  cir- 
culation of  boot-  and  shoemakers  between  London 
and  provincial  towns  such  as  Leicester  and  Norwich ; 
there  being,  at  the  same  time,  a  fairly  steady  move- 
ment of  labor  in  various  parts  of  England  following 
the  transfer  of  industry  away  from  the  sphere  of 
trade-union  influence.  It  is  but  seldom,  however, 
that  the  seasonal  variations  of  industry  lead  to  con- 
siderable migration,  except  in  the  case  of  agriculture 
and  trades  dependent  on  the  seasons.  The  Irish 
harvesters  who  come  in  large  numbers  across  the 
Channel  to  meet  the  increased  demand  for  agricul- 
tural labor  at  harvest  time  may  be  taken  as  a  typical 
instance.  In  1890,  according  to  the  annual  return 
of  the  Registrar-General  for  Ireland,  in  the  month 
of  June,  14,081  persons  left  their  homes  to  seek 
employment  as  agricultural  laborers  elsewhere.  Of 
these  seasonal  migrants  84.4  per  cent,  sought  work 
in  England,  12.2  per  cent,  in  Scotland,  and  4.4  per 


Hi 


r 

li 


tf^ 


!          1 

[; '     i 

(■ 

lli' 


m 


224 


T/ic  Bargain  Theory  of  Wages. 


cent,  in  Irchmd,  mainly  in  Lcinstcr,  in  the  counties 
around  Dublin.  The  migrants  form  a  fairly  large 
percentage  of  the  total  male  adult  population, 
amounting  in  County  Mayo  to  15.3  of  the  total 
adult  male  population  of  the  county.  The  same 
migratory  tendency  during  harvest  season  is  observ- 
able in  Germany,  where  there  is  a  movement  of 
agricultural  laborers  out  of,  and  into,  the  eastern 
provinces  of  the  kingdom  of  Prussia.  In  1892, 
96,894  laborers  left  the  four  eastern  provinces.  East 
Prussia,  West  Prussia,  Silesia,  and  Posen,  and  moved 
westward  in  search  of  work,  to  return  to  their  homes 
at  the  end  of  the  season;  while  in  the  same  year 
nearly  twenty  thousand  immigrants  from  Russia  and 
Galicia  sought  temporary  employment  in  these  four 
provinces.  From  some  countries,  the  volume  of 
temporary  emigration  is  almost  as  large  as  the  vol- 
ume of  the  real  and  permanent.  In  1892,  from 
Italy,  107,025  emigrated  in  search  of  work,  for  the 
most  part,  in  the  spring  of  the  year,  to  various 
European  countries,  chiefly  to  France,  Austria, 
Switzerland,  and  Germany.  The  majority  of  the  mi- 
grants naturally  come  from  the  frontier  provinces, 
and  in  the  case  of  Udine  and  Belluno,  more  than 
seven  per  cent,  of  the  whole  population  seek  work 
in  other  European  countries  every  year.*  There  is  a 
similar  movement  across  the  Canadian  frontier  into 
the  United  States.  The  seasonal  industry  of  lum- 
bering, which  can  be  followed  in  the  winter  only, 

*  Mayo-Smith,  Statistics  and  Sociology,  pp.  318,  330;    cf,  Bren- 
\AVi.o^%  Hours y  Wages ^  and  Production,  pp.  41,  42. 


1'  !  ; 


Temporary  Migration, 


225 


causes  an  annual  migration  from  the  cultivated  por- 
tions of  the  country  to  the  woods  and  in  the  spring 
back  again.  When  the  lumberman  does  not  follow 
the  alternate  trades  of  farming  and  lumbering,  he 
has  his  summer  at  his  own  disposal.  Too  often, 
though  not  so  often  as  in  former  years,  the  summer 
is  spent  in  loafing;  but,  of  late,  with  the  improved 
means  of  communication  and  increased  knowledge 
of  industrial  opportunities,  there  has  sprung  up  a 
habit  of  sojourning  iti  the  United  States  during  the 
summer,  where  employment  is  obtained  mainly  as 
bricklayers  and  bricklayers*  laborers.  The  seasons  fit 
into  each  other.  The  frost  and  snow  which  throw  the 
bricklayers  out  of  employment  render  possible  the 
work  in  the  woods.  It  is  perhaps  commoner  for  the 
summer  to  be  spent  in  Canada  on  the  farm,  and  the 
winter  in  the  New  England  mills  and  factories;  and 
a  great  part  of  objection  raised  to  Canadian  labor  is 
due  to  this  practice  of  the  French  Canadian. 

The  Canadian  and  United  States  trade-unions 
make  common  cause  against  the  trans-Atlantic  mi- 
grant who  crosses  to  work  in  Montreal  and  New  York 
during  the  season  and  returns  for  the  winter  to  Scot- 
land and  England,  where,  in  the  milder  climate,  work 
can  generally  be  carried  on  throughout  the  winter. 
Masons  and  bricklayers  are  said  to  be  the  chief 
offenders;  but,  in  spite  of  cheap  fares  and  quick 
transit,  the  c  -^mpetition  of  such  migrants  cannot  be 
very  serious.  *t  is  alleged  in  Canada  that  these  men 
come  in  at  the  opening  of  the  year,  and  not  having 

to  face  the  rigors  and  the  lack  of  employment  char- 
ts 


m 


III] 


226 


The  Bargain  Theory  of  Wages. 


\  i 


tl!    ; 


yi  i 


;tii. 


acteristic  of  the  Canadian  winter,  can  afford  to  work 
for  lower  wages  than  the  Canadian  workman.  In 
Canada  work  is  scarce  in  winter,  and  generally  paid 
at  a  lower  rate ;  and  in  many  trades  is  impossible. 
Consequently,  an  artisan  must  make  up  by  the  higher 
wages  in  the  summer  for  the  slack  times  and  higher 
cost  of  living  in  the  winter. 

It  is  hardly  necessary  to  take  advantage  of  human 
weakness  before  numbers  running  into  millions,  to 
have  the  importance  of  emigration  recognized.  "With 
whatever  deductions  the  figures  require  to  be  taken, 
on  account  of  the  impossibility  of  forming  an  esti- 
mate of  the  net  or  real  emigration,  there  is  no  deny- 
ing the  importance  of  the  movement  they  exhibit. 
Less  striking,  perhaps,  but  no  less  profound  in  its 
consequences,  and,  in  reality,  no  less  imposing  in  its 
silent  magnitude  than  the  barbanun  invasions  which 
overthrew  the  Roman  Empire,  the  tide  of  emigra- 
tion has  set  steadily  from  the  old  world  to  the  new 
for  nearly  a  hundred  years,  and  shows  no  signs  of 
diminishing  in  force.  Since  the  beginning  of  the 
century,  in  every  year,  hundreds  of  thousands  of  the 
strength  and  manhood  of  every  State  in  Europe 
have  abjured  the  old  allegiance,  have  broken  the  old 
ties  and  the  old  associations  and  set  themselves  reso- 
lutely to  new  conditions  in  a  distant  part  of  the 
world.  Many  have  gone  among  strangers,  who  were 
yet  kinsfolk,  speaking  the  same  language  and  in- 
heriting the  same  political  traditions;  but  to  the 
great  majority  emigration  has  meant  the  profound 
change  of  home  and  language  and  customs.     The 


.'mi  i 


Loss  and  Gain. 


227 


results  of  this  movement  are  incalculable.  New 
continents  have  been  opened  up,  that  larger  popula- 
tions might  be  supported  at  home;  new  markets 
have  been  established,  that  industry  might  be  more 
economically  conducted ;  new  wealth  has  been  cre- 
ated ;  new  resources  developed ;  new  nations  called 
into  being. 

The  nations  of  the  old  world  have  given  of  their 
abundance  that  the  nations  of  the  new  might  be 
built  up ;  but  we  cannot  estimate  the  greatness  or 
the  value  of  the  gift  by  the  rough-and-ready  method 
of  regarding  every  emigrant  as  an  irretrievable  loss 
and  e\'^ery  immigrant  as  a  great  gain.  The  popula- 
tion of  the  British  Isles  would  not  have  been  in  ex- 
cess of  fifty  millions  if  the  fifteen  millions  who  have 
left  her  shores  had  remained  within  her  sea-girt 
borders.  It  would  have  been  no  larger  than  it  is  at 
present,  and  it  is  possible  it  might  have  been  a 
great  deal  less.  Whatever  may  be  the  case  un- 
der more  ideal  conditions  of  land  tenure  (and  Dr. 
Geffchen  *  shows  that  emigration  from  the  various 
provinces  of  Germany  bears  a  distinctly  inverse  rela- 
tion to  the  average  size  of  the  holding),  at  present 
the  British  Isles  could  not  produce  food  for  thirty- 
eight  millions  without  serious  economic  loss  and  in- 
dustrial derangement.     A  much  larger  proportion  of 

*  Schonberg's  Handbuch,  ii.,  Auf.  iii.,  p.  1063.  Die  Ursaclien 
liegen  teils  in  der  Ertrags.fahigkeit  des  Bodens,  noch  mehr  aber  in 
dessen  Verteilung  ;  Ostpreussen  ist  durchschnittlich  nicht  sehr  frucht- 
bar  und  hat  doch  wenig  Auswanderun^,  Mechlenburg  ist  fruchtbar 
und  hat  starke  Auswanderung,  in  ersterem  ist  mehr  Bodenverteilung, 
in  letzterem  herrschen  die  Latifundien, 


•■■\ 


'      M 


.1 


11 


'   ^1 

J   '1 
1  ii 

1      '■ 

\     ! 

I 

1   ! 

228 


TJic  Bargain  Theory  of  Wages. 


\  % 


\  '.  i 


hi 


t 


the  population  would  require  to  devote  itself  to  the 
production  of  food,  and  England's  economic  position 
as  an  industrial  and  manufacturing  nation  could  not 
be  maintained.  Her  extreme  industrial  specializa- 
tion has  been  possible  because  the  opening  up  and 
settling  of  virgin  continents  have  given  her  a  cheaper 
supply  of  food  than  she  could  have  obtained  from 
her  own  soil ;  and  have,  at  the  same  time,  widened 
the  market  for  the  products  of  her  mills  and  fac- 
tor* cs.  The  area  of  the  world's  market  has  been 
extended  by  the  movement ;  and  productive  capacity 
has  been  increased  to  a  proportional  extent.  The 
emigrants  departed  only  to  make  room  for  a  corre- 
sponding number  of  workers.  As  we  saw  in  Chapter 
v.,  a  large  number  of  the  emigrants  have  risen  at 
least  nominally  in  the  ranks  of  labor;  and,  so  far  as 
this  rise  from  the  ranks  of  the  unskilled  has  been 
real,  there  has  been  a  great  gain  to  the  productive 
capabilities  of  the  world.  The  great  volume  of  emi- 
gration has  permitted  a  more  economical  use  of  the 
world's  resources;  and  to  this  extent  emigration  has 
been  fruitful  of  gain.  It  cannot  be  said  that  the 
gain  has  been  distributed  in  proportion  to  the  con- 
tributions made.  The  emigrants  themselves  in  the 
new  country  have  naturally  engrossed  a  greater  part 
of  it ;  but  what  of  gain  there  has  been  for  the  coun- 
tries of  origin  has  not  been  distributed  according 
to  the  contributions  made  to  the  volume  of  emi- 
gration. Nations  have  shared  in  it  which  have 
contributed  nothing.  The  trade  of  France  with 
the  United   States  has  grown  during  the  last  sev- 


1 


Measure  of  Loss  and  Gain. 


229 


IP 


enty  years  as  steadily  as  the  trade  of  Germany: 
yet  France  has  sent  none  of  her  children  beyond 
the  seas,  while  Germany  has  given  more  than  six 
millions.  The  exports  of  the  United  Kingdom  to 
the  United  States  have  risen  from  rather  less  than 
four  millions  sterling  in  1820  to  more  than  thirty- 
two  millions  in  1890;  and  the  increase  docs  not 
seem  to  be  as  great  as  might  be  expected  in  return 
for  a  contribution  of  eight  or  nine  millions  of  people ; 
especially,  when  we  remember  that  the  total  British 
export  trade  has  increased,  in  the  same  period,  in 
almost  the  same  ratio,  from  thirty-six  millions  to 
two  hundred  and  sixty-three.  We  cannot  say  how 
great  an  increased  resultant  of  trade  we  might  have 
looked  for;  and,  consequently,  we  have  no  means 
of  measuring  absolutely  the  loss  and  gain  by  emigra- 
tion. France  has  undoubtedly  gained  because  she 
has  in  the  beginning  lost  little,  and  her  gains  are 
therefore  net  gains.  Germany  has  lost  as  much 
as  any  nation  because  all  her  citizens  have  emigrated 
to  foreign  countries.  The  United  Kingdom  has  not 
lost  so  much  proportionally;  because,  though  the 
great  majority  of  her  emigrants  have  gone  to  coun- 
tries independent  of  their  native  land,  a  certain  pro- 
portion have  settled  in  the  British  colonies  and  have 
maintained  closer  ties  with  the  mother  country  than 
have  those  who  settled  in  the  United  States.  This 
gives  us  one  relative  means  of  estimating  the  loss 
and  gain  of  emigration.  Each  colonist  buys  British 
produce  to  the  amount  of  one  hundred  and  sixty- 
eight  shillings,   while  the  emigrant  to  the  United 


.   f 


vi  \ 


n\ 


I' 


I! 

v. 

1 1 


k 


f* 


mt't 


230 


T/ie  Bargain  Theory  of  Wages. 


ii 


5  lir  !i^ 


<   si 


ll  I 


ll'i'i;   ■■       i 


States  buys  only  forty-seven  shillings'  worth — a 
difference  of  one  hundred  and  twenty-one  shillings 
per  head.  We  need  not  attempt  to  determine  how 
far  trade  follows  the  flag;  but  it  is  obvious  that  if 
the  eight  or  nine  millions  who  have  left  the  British 
Isles  for  the  United  States  had  gone  to  the  British 
colonies,  British  export  trade  would  have  been  larger 
by  thirty  or  forty  millions  per  annum,  or,  making 
allowance  for  an  earlier  and  completer  industrial  de- 
velopment of  the  colonies  consequent  upon  the  larger 
emigration,  by  at  least  twenty  millions.  Even  to 
the  colonies  Englishmen  go  out,  as  the  Corcyrans 
did  of  old,  "  on  a  footing  of  equality  with,  not  of 
slavery  to,  those  that  remained  behind,"  and  since 
the  colonial  trade  was  freed  from  all  preferences  to 
English  goods,  we  have  no  guarantee  that,  as  colo- 
nists, they  buy  all  that  a  corresponding  number  at 
home  would  have  bought.  It  is  only  a  relative 
means  of  estimating  the  loss  by  emigration.  J.  S. 
Mill  declares  that  "  there  needs  be  no  hesitation  in 
affirming  that  colonization,  in  the  present  state  of 
the  world,  is  the  best  affair  of  business  in  which  the 
capital  of  an  old  and  wealthy  country  can  engage  "  * ; 
but  the  main  result  of  emigration,  at  any  rate,  for 
most  European  nations  seems  to  be  the  creation  and 
fostering  of  industrial  and  commercial  rivals.  Ger- 
many has  all  along  suffered  more  or  less  from  the 
competition  of  the  United  States  as  a  food  producer 
and  as  a  competitor  for  the  English  market.  Eng- 
lish agricultural  interests  have  likewise  suffered; 
and  we  seem  to  be  at  the  beginning  of  a  period  of 

*  Principles  of  Political  Economy  {^OT^.  ed.),  p.  586, 


K^  1  < 


The  Gain  to  the  Receiving  Country,  231 


industrial  competition  between  England  and  the 
United  States.  As  Adam  Smith  says,  in  another 
connection,  "the  inconveniences"  of  emigration 
"  every  country  has  engrossed  to  itself  completely. 
The  advantages  ...  it  has  been  obliged  to 
share  with  many  other  countries."  * 

On  the  other  hand  the  addition  to  the  population 
in  the  receiving  countries  cannot  be  regarded  as  pure 
gain.  The  population  of  the  United  States  has 
during  the  emigration  period  been  augmented  by 
fifteen  millions  of  immigrants;  but  the  rate  of  in- 
crease of  the  population  has  remained  stationary 
during  the  period  or  actually  fallen.  It  may  seem 
too  much  to  say  that  the  population  of  the  United 
States  would  have  been  as  large  as,  or  larger  than, 
it  is  to-day,  had  there  been  no  immigration;  but  it 
is  undoubtedly  true  that  immigration  has  checked 
what  would  otherwise  have  been  the  natural  rate  of 
increase.  The  fact  is  clearly  brought  out  in  the 
following  table  : 


:fe 


PERCENTAGE  OF  INCREASE  IN 

YEAR. 

POPULATION. 

INCREASE 

IMMIGRA- 
TION IN 

DECADE. 

IN  DECADE. 

DECADE, 

Total. 

By  Immi- 
gration. 

Natural. 

1840 

17,069,453 

4,203,433 

599.125 

32.67 

4.66 

28.01 

1850 

23,191,876 

6,122,423 

1,713,251 

35-87 

10.04 

25.83 

i860 

31,443,321 

8,251,445 

2,579,580 

35-58 

11.12 

24.46 

1870 

38,558,371 

7,115,050 

2,278,425 

22.63 

7-25 

15-38 

1880 

50,155,783 

11,597,412 

2,812,191 

30.08 

7-29 

22.79 

1890 

62,622,250 

12,466,467 

5,246,613 

24.86 

10.46 

14.40 

♦  Wealth  of  Nations  (Nicholson's  ed.),  p.  260, 


ir 


J;  !l 


•  '1 


!:i: 


i^    i.i!' 


232 


T/ie  Bargain  Theory  of  Wages, 


Moreover,  the  countries  of  Europe  have  not  always 
completed  their  contributions.  They  may  give  the 
labor;  but  without  the  opportunities  for  employing 
the  laboi  the  gift  may  be  a  burden ;  and  the  oppor- 
tunities are  limited  by  the  wealth  and  capital  of  the 
country.  In  the  United  States,  in  1890,  the  average 
amount  of  wealth  per  inhabitant  exceeded  one  thou- 
sand dollars;  and  the  average  amount  of  wealth 
brought  in  by  the  immigrant  certainly  does  not 
amount  to  one  hundred  dollars.  We  may  not  ac- 
cept in  its  full  extent  the  proposition  that  indus- 
try is  limited  by  capital;  and  yet  we  must  admit 
that  in  modern  industry  capital  is  indispensable.  In 
1890  the  capital  invested  in  the  United  States  in 
mechanical  and  manufacturing  industries  alone 
amounted  to  $6,525,156,486,  or  rather  more  than 
one  hundred  dollars  per  head  of  the  population,  or 
$1384  per  employee.  To  the  fund  of  capital  the 
immi[' 'ant  can  add  little  or  nothing;  and,  conse- 
quently, to  the  degree  in  which  the  Wages-Fund 
Theory  is  true,  immigration  may  prove  a  hardship  to 
the  receiving  nation. 

These,  however,  are  only  general  considerations 
which  might  help  us  to  decide  whether  emigration 
and  immigration  is  a  loss  or  gain ;  but  they  afford 
no  means  of  estimating  how  much  the  gain  or  the 
loss  actually  is.  Various  methods  *  have  been  em- 
ployed to  obtain  an  approximate  measure  of  the 
amount.     The  one  generally  employed  consists  in 

*  For  a  full  discussion  of  th^se  methods  see  Mayo-Smith,  Emigra- 
tion^ c,  6, 


The  Gain  not  to  be  Accurately  Measured.      233 


forming  some  rough  estimate  of  the  cost  of  rearing 
and  training  a  child  till  he  arrives  at  industrial  years, 
and  then  taking  this  amount  as  the  measure  of  the 
loss  to  the  country  of  origin  and  the  gain  to  the 
country  which  receives  him.  To  this  amount  is 
generally  added  the  average  amount  of  money  in 
the  shape  of  gold  or  drafts  which  the  immigrant 
brings  with  him.  Another  and  more  elaborate 
method  estimates  the  laborer's  chances  of  life, 
according  to  the  accepted  standards,  and  then,  after 
deducting  from  his  total  earnings,  during  the  period 
he  has  still  to  live,  the  cost  of  maintaining  him 
during  that  period,  regards  the  surplus  as  the  loss 
by  each  emigrant  and  the  gain  by  each  immigrant. 
These  calculations  and  results  are  exceedingly  inter- 
esting, and  throw  some  light  on  the  question  of  the 
balance  of  trade  between  nations,  but  do  not  go  far 
to  give  us  an  accurate  measure  of  loss  and  gain  by 
emigration  and  immigration.  They  err  in  attempt- 
ing to  measure  accurately  what  cannot  be  accurately 
measured ;  and  are  also  open  to  the  serious  objection 
that  they  suppose  labor  to  have  some  definite  pre- 
determined value  apart  from  the  opportunities  it  may 
be  afforded  of  creating  wealth.  That  it  is  a  loss  to  a 
nation,  however,  to  train  up  its  children  to  manhood 
and  then  have  to  begin  the  process  anew,  when  the 
strength  and  manhood  of  the  nation  seek  a  career 
in  a  foreign  land,  is  a  fact  which  cannot  be  disputed. 
The  world,  as  a  whole,  may  be  a  gainer  by  the  pro- 
cess, but  to  the  individual  country  of  origin  the  pro- 
cess is  not  only  a  loss,  but  a  disheartening  loss.     The 


■     ! 


,    I 


TT 


»rr 


!   !     I 


mi 


234 


T/ic  Bargain  Theory  of  Wages. 


majority  of  the  emigrants,*  more  than  sixty  percent, 
of  them,  arc  adult  males  in  the  prime  of  their  physi- 
cal strength,  and  the  drain  is  on  the  effective  indus- 
trial population  of  a  nation. 

The  grand  totals  of  emigration  and  immigration 
have  led  many  to  adopt,  somewhat  unnecessarily, 
an  alarmist  tone.  There  is  no  country  in  danger  of 
being  depopulated  on  account  of  emigration  and  no 
country  where  the  quantity  rather  than  the  quality 
affords  real  cause  for  alarm.  Here  and  there  there 
may  be  districts  from  which  immigration  has  taken 
away  all  the  energy  and  left  nothing  but  stagnation 
and  depression  behind.  In  the  Maritime  provinces 
of  Canada  there  are  districts  which  have  suffered 
very  severel.-  more  severely  than  the  aggregates  of 
the  census  reports  at  first  indicate;  but  there,  as 
elsewhere,  over  a  large  area,  emigration  can  do  little 
more  than  keep  the  population  stationary  and  seldom 
carries  out  anything  like  the  natural  excess  of  births 
over  deaths.  As  the  volume  of  immigration  is  seldom 
distributed  equally  over  the  whole  area  of  the  receiv- 
ing country,  so  it  is  rarely  ever  drawn  in  equal  pro- 
portions from  the  districts  of  the  country  of  origin. 
Particular  districts  may  experience  an  actual  decrease 
in  population,  but,  as  the  following  table,  taken 
partly  from  Schonberg's  HandbucJi,  and  partly  from 
Mayo-Smith's  Statistics  and  Sociology^  shows,  there 
is  little  danger  of  a  country  being  depopulated : 

♦  See  Fawcett's  Political  Economy,  p.  602  (sixth  ed). 


Natural  Increase  of  Population. 


235 


COUNTRY. 


United  Kingdom 

(Jermany , 

Italy , 

France 

Switzerland  .... 

Sweden , 

Norway 

Denmark , 


EXCESS  OF   BIRTHS   OVER 

DEATHS   I'KR    lOOO 

INHABITANTS. 


[EMIGRATION    I'ER    lOOO  IN- 

IHAIUTANIS  TO   COUNTRIES 

OUTSIDE   EURUl'E. 


1885. 


12.3 
II-5 

6.4 
II. 8 
14.9 
II. 7 


1888. 


IT. 9 

12.9 
9.8 
I  .  T 

7.8 

13.8 


1892. 


10.54 

17.0 

10.14 

0.5 

8.7 

9.1 

TI.9 

10. 1 


1885. 

i838. 

1892. 

3-7 

7-5 

5-51 

2  ,  2 

2.0 

2.23 

2.7 

6.8 

3-53 

0.1 

0.6 

0.14 

2.3 

2.8 

2.64 

4.0 

9-7 

6.87 

7.2 

II. 2 

H.53 

2.1 

4.0 

4.76 

•1  ' 


I 


■;  i 


From  this  tabic  it  i.s  apparent  that  emigration  is 
greatest  in  proportion  from  those  countries  where 
the  natural  excess  of  births  over  deaths  is  highest, 
and  where  the  population  increases  but  slowly,  the 
volume  of  emigration  is  least.  From  France,  from 
which  there  is  practically  no  emigration,  the  excess 
of  births  over  deaths  is  barely  sufficient  to  keep  the 
population  stationary.  The  Maritime  provinces  of 
Canada  present  the  somewhat  unusual  phenomenon 
of  a  lartre  excess  of  births  over  deaths  and  a  .station- 
ary  population ;  and  the  phenomenon  is  accounted 
for  by  emigration  to  the  United  States.  Unfortu- 
nately, no  systematic  records  of  the  movements  of 
population  are  kept;  and,  since  1885,  the  United 
States  has  ceased  even  to  pretend  to  keep  account 
of  the  immigration  from  British  North  America.  In 
the  census  year  1891  the  excess  of  births  over  deaths 
was  for  New  Brunswick,  14.34  per  thousand;  for 
Prince  Edward,  13. 19  per  thousand ;  for  Nova  Scotia, 


III 


!• 


il 


^^ 


I';! 


til  I. 


It  I 


it  il 


{■\% 


236 


T/ii^  Bargain  Theory  of  Wages. 


10.84  per  thousand.  This  large  excess  is  removed 
by  emigration ;  for  the  population  of  Nova  Scotia 
increased  in  the  decade  1881-91  only  2.23  percent.; 
Prince  Edward  Island  increased  .17;  and  the  popu- 
lation of  New  Brunswick  has  remained  absolutely 
stationary. 

The  forces  which  have  led  to  emigration  have 
changed  from  generation  to  generation ;  but  the 
only  really  efficient  cause  has  been  the  economic. 
It  is  true  that  the  economic  motive  began  to  operate 
only  from  the  beginning  of  the  present  century. 
Early  emigration  was  due  to  political  or  religious 
causes;  but  the  volume  of  emigration  never  swelled 
to  any  dimensions  till  the  economic  motive  began 
to  operate. 

In  175 1,  when  the  population  of  the  American 
colonies,  according  to  Bancroft,  was  more  than 
eleven  hundred  thousand,  Benjamin  Franklin  *  esti- 
mated that  the  number  of  emigrants  from  whom 
this  population  was  descended,  did  not  amount  to 
more  than  eighty  thousand,  of  whom  twenty  thou- 
sand had  arrived  before  1640.  Practically,  we  may 
say,  that  emigration  from  Europe  did  not  begin  till 
after  the  downfall  of  Napoleon  had  released  Europe 
from  the  fears  of  immediate  war  and  permitted  the 
governments  of  Europe  to  slacken  their  hold  upon 
their  subjects.  From  1820,  the  movement  of  the 
nations  begins.  Men  sought  no  longer  an  Eldorado 
where  even  the  poorest  might  grow  rich  without 
effort,  or  a  retreat  where  they  might  worship  God 

*  Works^  vol.  ii.,  p.  319. 


Emigration  an  Economic  Movement,         237 


according  to  the  dictates  of  conscience;  but  a  land 
of  opportunity.  The  political  motive  has  not  been 
entirely  absent  during  the  present  century,  though 
it  has  usually  been  an  economic  motive  under  a 
political  guise.  The  excessive  drain  from  Italy 
during  the  last  decade  is  unmistakably  due  to  the 
tremendous  and  increasing  burden  of  taxation.  The 
desire  to  escape  the  blood  tax  of  compulsory  military 
service  has  swelled  the  volume  of  emigration  from 
Germany.  Even  in  1872  and  1873,  when  the  con- 
ditions of  the  laboring  classes  were  "  fast  ungesund 
giinstige,"  *  more  than  ten  thousand  injunctions 
were,  each  year,  taken  out  against  intending  emi- 
grants on  the  ground  that  they  had  not  served  in 
the  army ;  and  as  the  burdens  of  militarism  are  in- 
creased, and  grounds  in  mercy  for  exemption  are  re- 
stricted, larger  numbers  will  annually  seek  to  escape 
from  the  burden  which  already  presses  with  crush- 
ing weight  upon  the  manhood  of  Europe.  The 
desire  to  escape  from  the  burden  of  taxation  is, 
however,  only  an  economic  motive  slightly  disguised. 
Pure  political  motives  operate  rather  to  restrict  than 
to  increase  the  volume,  although  the  hereditary  hate 
of  the  Irish  for  England  still  sustains  a  movement 
of  which  bad  agrarian  conditions  have  been  the  chief 
cause. 

When  we  examine  the  statistics  of  emigration  and 
immigration  we  discover  that  there  have  been  cycles 
in  the  movement  which  correspond  in  a  certain 
measure  with  the  cycles  in  industry  and  commerce. 

*  Schonberg's  Handbuch,  ii.,  p.  1063. 


t    1 


'''  I. 


J'- 


S!  1 


r;-;i 


238  The  Bargain  Theory  of  Wages. 

The  fluctuation  in  the  volume  of  emigration  is  obvi- 
ously an  effect  of  the  variations  of  industry ;  but  the 
way  in  which  the  state  of  industry  reacts  on  the 
volume  of  emigration  is  not  very  clear.  There  has 
been  a  good  deal  of  discussion  on  the  point  whether 
emigration  increases  because  of  good  times  or  of 
bad  times.  It  is  argued,  on  the  one  hand,  though 
somewhat  a  priori,  that  the  volume  of  emigration 
will  be  largest  when  industry  is  in  the  most  flourish- 
ing condition,  because  only  at  such  times  are  the 
working  classes  able  to  meet  the  necessary  expenses. 
Prince  Bismarck  argued,  in  the  Reichstag,  on  June 
8,  1885,  that  emigration  increased  during  periods  of 
prosperity,  and  even  went  so  far  as  to  take  the  posi- 
tion, from  which  he  afterwards  receded  somewhat, 
that  it  was  the  only  cause  of  the  increase.  Emigra- 
tion, however,  as  Dr.  Geffchen  *  argues  conclusively 
.0  the  contrary,  is  not  greatest  from  the  most  pros- 
perous districts  of  Germany,  but  from  the  least  pros- 
perous. On  the  other  hand,  it  is  argued  equally  a 
priori  that  men  leave  their  native  country  only 
under  pressure  of  bad  times.  But  those  who  are 
out  of  work  have  not  the  means;  and,  as  a  rule, 
those  who  have  the  means  are  not  in  a  mood  to 
make  so  great  an  experiment.  The  following  com- 
parative table  of  out-of-work  and  emigration  statis- 
tics shows  what  relation  has  actually  held  in  England 
between  emigration  and  the  state  of  trade.  The 
out-of-work  returns  are  taken  from  Mr.  Burnett's 
Board  of  Trade  Report. 

♦  Schonberg's  Handbuch,  ii.,  p.  1060. 


:   ■! 


The  Causes  of  Emigration, 


239 


YEAR. 

1886 

1887 
1888 
l8Sy 
1890 
1 89 1 
l8y2 

1893 
1894 

1895 


PERCENTAGE 
OUT  OF 
WORK. 


10. 1 
8.6 
4.4 

1.8 
2.6 

4-45 

7.33 

7.9 
7.0 

5.8 


NET  EMIGRATION  OF 


TERCENTAGE  OF 


BRITISH  AND  IRISH  EMIGRATION 

SUltJKCTS.                       TO  POPULATION. 
....    152,882    0.41 


196,012  0.53 

185,795  0.50 

150,725  0.40 

108,646  0.29 

115,470 0.30 

112,262  0.29 

106,695  0.27 

37,721  0.09 

75.763  0.19 


.ly 


'he 
tt's 


These  figures  prove  nothing  very  conchisively  re- 
garding the  cause  of  emigration.  The  volume  of 
emigration  is  practically  equal  in  the  best  year  and 
the  worst  year,  in  1889  and  in  1886.  The  volume 
of  emigration  is  greatest  when  the  state  of  trade  is 
neither  very  good  nor  very  bad.  The  period  taken 
for  comparison  is  too  short  to  justify  any  sweeping 
conclusion.  If  any  conclusion  at  all  is  justified,  it 
is  that  the  years  of  reviving  trade  after  a  period  of 
depression  are  marked  by  an  increase  of  emigration. 
The  memories  of  bad  times  have  not  yet  faded,  and 
the  first  use  many  seem  to  make  of  more  regular 
work  and  higher  wages  is  to  scrape  together  enough 
to  leave  the  country. 

When  we  turn  to  the  figures  of  immigration  into 
the  United  States,  we  find  that  the  volume  of  migra- 
tion has  fluctuated  to  a  very  large  extent,  and  that 
it  has  perfectly  definite  maxivia  and  minima  which 
correspond  with  the  course  of  trade  and  industry. 
When  we  look  closely  into  the  fluctuations,  we  see 
them  coincide  very  nearly  with  the  changes  in  the 


!| 


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The  Bargain  Theory  of  Wages. 


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prosperity  of  the  country  which  receives  the  immi- 
grant :  the  concomitant  variation  proves  that  the 
connection  between  immi<^ration  and  prosperity  is 
very  close,  but  whether  the  connection  is  of  cause  or 
of  effect  or  of  mutual  determination  does  not  clearly 
appear.  I  have  compared  in  the  following  diagram 
the  fluctuations  in  trade  and  in  immigration,  and  with 
that  purpose  have  selected  as  the  best  index  of  the 
relative  prosperity  of  a  new  country  like  the  United 
States  the  number  of  new  miles  of  railroad  opened 
each  year  since  1845.  This  is  only  one  indication 
out  of  many,  and  might  easily  be  supplemented  by 
others,  such  as  the  earnings  of  the  railroads,  the 
bankruptcies  in  each  year,  the  total  exports  and  im- 
ports, the  exports  and  imports  of  bullion ;  but  the 
index  selected  is  perhaps  as  clear  as  any  other,  and, 
in  the  case  of  the  United  States,  which  down  to  the 
last  decade  was  still  in  process  of  expansion,  is  prob- 
ably better  adapted  to  show  the  fluctuations  which 
have  taken  place  in  the  business  of  the  community. 
While  there  are  still  large  areas  to  be  opened  up, 
advancing  prosperity  will  always  be  marked  by 
schemes  for  new  railways :  when  trade  is  depressed 
and  new  enterprises  arc  avoided  fewer  miles  will  be 
constructed.  In  the  diagram  the  number  of  immi- 
grants is  shown  in  the  left  margin  in  thousands  (fifty 
thousand  to  the  half-inch);  and  the  number  of  new- 
miles  of  railroad  constructed  each  year  is  shown  in 
the  right  margin  (one  thousand  to  the  half-inch). 
An  examination  of  the  diagram  will  give  a  clearer 
idea  of  the  correspondence  than   many   tables   of 


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The  Diagram. 


241 


figures.  The  comparison  has  only  been  carried  back 
to  1845,  on  account  of  the  necessities  of  the  scale 
and  of  clearness.  The  diagram  also  exhibits  an 
analysis  of  the  main  curve  of  immigration  into  its 
chief  constituent  elements,  the  German  and  the 
British,  which  latter  again  is  analyzed  in  the  curve 
of  Irish  immigration.  The  intention  at  first  was  to 
trace  on  the  same  diagram  the  fluctuations  of  Ger- 
man and  British  trade  and  industry ;  but  the  remark- 
able and  unexpected  closeness  of  the  correspondence 
between  the  prosperity  of  the  United  States  and  the 
voluipe  of  immigration  has  rendered  this  unneces- 
sary. The  maxima  and  minima  of  the  two  curves 
practically  coincide.  The  only  variation  of  any  im- 
portance occurred  between  1845  ^^^  1850,  when  the 
volume  of  immigration  was  large  from  the  effect  of 
the  Irish  famine.  There  are  two  explanations  of 
this  remarkable  concomitant  variation — one  that  the 
immigration  is  the  cause  of  the  expansion  of  trade 
and  industry,  the  other  that  it  is  the  effect  of  such 
expansion.  The  former  is  not  often  put  forward  as 
an  explanation,  and  in  this  instance  may  be  set  aside, 
because  the  maxima  and  minium  of  trade  and  in- 
dustry as  indicated  by  the  railroad  expansion  occur 
one  or  two  years  earlier  than  the  corresponding 
maxima  and  minima  of  immigration.  The  increase 
or  decrease  in  the  amount  of  immigration  is  thus 
governed  by  the  state  of  trade  in  the  United  States. 
Mr.  Llewellyn  Smith  uses  a  phrase  to  describe  the 
cause  of  migration  from  the  provinces  to  London 

;    an    explanation   of    the 


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T/ie  Bargain  Theory  of  Wages. 


amount  of  immigration.  It  is,  he  says,  due  not  to 
pressure  from  without  but  to  suction  from  within. 
The  expansion  of  trade  and  industry  creates  a  de- 
mand for  labor  (and  for  labor  of  such  a  kind)  as  can 
best  be  supplied  from  the  outside.  Immigrants  come 
in  response  to  the  invitation  of  industry  and  come 
to  do  work,  as  we  shall  see  later,  which  the  native 
American  is  unwilling  to  do.  The  state  of  the 
country  of  origin  has  little  to  do  with  determining 
the  volume  of  emigration.  Commercial  depressions 
are  experienced  at  the  same  time  in  the  United  King- 
dom and  in  America,  and  emigration  offers  small 
chance  of  escape.  From  Italy  and  the  southern 
countries  of  Europe  the  volume  of  emigration  is 
almost  entirely  determined  by  the  state  of  trade  in 
the  United  States.  A  large  proportion  of  these 
immigrants  are  assisted  by  remittances  from  the 
friends  who  have  pieceded  them  to  America;  and 
the  amount  of  such  remittances  naturally  decreases 
when  trade  is  bad  in  America.  Germany  occupies 
the  middle  position.  It  is  not  so  readily  subject  to 
commercial  depressions  and  on  the  other  hand 
German  emigrants  are  not  so  dependent  as  Italians 
on  remittances  from  America.  We  should  expect, 
therefore,  that  the  variations  in  the  volume  of  Ger- 
man emigration  would  correspond  less  closely  with 
the  changes  in  industry  in  the  United  States;  and 
this  result  is  discernible.  There  was  a  large  increase 
after  1853  ^^  consequence  of  the  bad  times  and 
scarcity  in  Germany ;  but  since  then  the  two  curves 
have  moved  together. 


M. 


The  Industrial  Quality  of  the  Euiigrants.    243 


The  comparative  tabic  of  excess  of  births  over 
deaths  and  of  emigration  on  page  235,  disposed  of 
the  alarmist  idea  that  continued  emigration  would 
result  in  depopulation.  The  fear  that  the  industrial 
capacity  of  a  nation  may  be  fatally  weakened  will 
also  give  way  if  we  consider  the  industrial  character 
of  the  emigrants.  No  nation  is  really  giving  of  its 
best.  It  gives  at  the  most  only  a  certain  proportion 
of  its  unskilled  labor  and  sends  out  but  few  of  its 
artisans  and  factory  hands  to  carry  to  new  lands  the 
secrets  of  traditional  skill.  In  1891,  according  to 
the  gross  estimate,  189,756  adults  of  British  origin  of 
whom  112,256  were  males,  left  the  United  King- 
dom. The  adult  males  were  classified  according  to 
occupation  as  follows: 

Agricultural  laborers 14,797 

Unskilled  laborers  and  miners 36,251 

Occupation  not  stated 26,663 

Mechanics  and  skilled  laborers 9»7I7 

Farmers  and  graziers 3,704 

Clerks  and  shopkeepers 4,773 

Professional  men 11,467 

Miscellaneous 4,614 

So  that  if  we  include  among  the  unskilled — as  we 
may  reasonably — those  whose  occupations  are  not 
stated,  of  112,256  adult  males,  more  than  70,000,  or 
about  sixty-three  per  cent.,  were  unskilled  laborers. 
From  other  countries,  the  proportion  of  unskilled 
laborers  is  still  larger.  From  the  point  of  view  of 
production  there  is  no  cause  for  alarm ;  but,  from 
the  point  of  view  of  the  wages  question,  there  is, 


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I 


i^(i'.! 


Ill'' 


I-      I 


i: 


n\ 


244 


T/w  Bargain  Theory  of  Wages. 


also,  unfortunately,  little  reason  for  regarding  emi- 
gration as  a  means  of  lessening  the  competition  for 
work.  As  the  table  on  page  239  shows,  the  relief  to 
the  labor  market  is  hardly  ever  given  when  it  is 
most  wanted.  When  ten  per  cent,  of  the  working 
population  of  the  country  are  out  of  work  the  emi- 
gration of  less  than  one  per  cent,  of  the  population 
or  about  two  per  cent,  of  the  working  population 
can  hardly  have  much  effect.  Emigration,  it  is 
true,  carries  out  a  considerable  proportion  of  the 
lower  classes  of  labor. 

Nothing,  probably,  would  benefit  the  working 
classes  more  than  the  removal  of  the  competition  of 
the  casually  employed  and  semi-vicious  class,*  but 
the  strenuous  objections  which  the  United  States 
and  the  colonies  raise  against  the  practice  of  assist- 
ing paupers  and  criminals  has  effectively  checked  the 
tendency  to  relieve  the  country  of  the  useless  and 
the  burdensome  members  of  the  community.  The 
number  actually  turned  back  from  New  York  is  not 
large  (in  1896,  only  2799  out  of  343,267,  and  of  those 
sent  back  'j'jG  were  refused  admission  under  the  con- 
tract-labor law),  but  the  deterrent  effect  must  be 
great.  The  shipping  agents  are  made  unwilling  to 
accept  such  passengers  and  therefore  look  more 
carefully  into  the  conditions  of  each  case.  Volun- 
tary agencies  may  continue  to  send  children,  and 
those  who,  though  not  criminal,  are  not  exactly  de- 
sirable settlers ;  but  the  relief  to  the  poor-rates  must 
be  inconsiderable  and  the  relief  to  the  competition 

*  Booth,  Life  and  Labor,  vol.  i.,  p.  162. 


Emigration  and  the  Labor  Market.  245 


in  the  labor  market  still  less.  The  general  effect  of 
emigration  on  the  labor  market  and  on  the  wages 
question  either  for  good  or  evil  cannot  be  very  great. 
The  relief  afforded  is  not  great  enough,  nor  is  it 
given  at  the  right  time,  to  be  of  much  advantage. 
Indirectly,  emigration,  by  extending  the  market  and 
rendering  possible  economies  in  production  may 
benefit  the  laboring  classes.  The  export  trade  of  a 
country  will  increase  with  the  volume  of  emigration 
and  there  will  be  a  larger  dividend  to  distribute 
among  the  owners  of  the  different  factors  of  pro- 
duction. Emigration  may  also  enable  those  of  the 
working  classes  who  remain  behind  to  obtain  food 
and  other  necessaries  of  life  at  a  lower  labor  cost. 

The  effect  of  immigration  on  the  wages  question 
requires  more  serious  consideration ;  because,  on 
this  point,  discussion  has  not  been  confined  to 
vague  generalities.  Definite  assertions  are  made 
regarding  the  effect  on  wages  and  in  many  countries 
a  definite  policy  of  restriction  has  been  adopted.  It 
is  alleged  that  immigration  unnaturally  increases 
competition  in  the  labor  market  and  increases  above 
all  unfair  competition  of  underpaid  labor.  If  this 
be  the  result  of  immigration,  the  mobility  of  labor 
has  its  darker  side ;  for  it  not  only  tends  to  level  the 
wages  up  but  also,  it  seems,  to  level  wages  down. 

The  contention  that  immigration  tends  to  reduce 
wages,  in  its  usual  form,  is  based  on  an  unqualified 
acceptance  of  the  Subsistence  Theory  of  wages ;  and 
the  answers  to  the  contention  are  generally  little 
more  than  unqualified  assertions  of  the  Productivity 


I  ? 


' 


246 


The  Bargain  Theory  of  Wages. 


'.  i 


ifi. 


fcj 


ii  if, 


Theory.  If  wages  are  determined  solely  by  the 
standard  of  comfort  which  the  lowest  class  of  com- 
peting^ labor  has  adopted,  then  the  constantly  re- 
newed competition  of  foreign  labor  with  a  low 
standard  of  life  must,  as  constant  dripping  wears 
away  a  stone,  wear  away  the  resistance  which  the 
working  classes  can  oppose  to  the  lowering  of  the 
standard.  If  the  gates  of  the  country  were  thrown 
open  but  once  in  a  generation  to  the  crowd  of  half- 
fed,  half-clothed  foreigners,  there  might  be  some 
chance  of  successfully  resisting  the  tendency  to 
lower  the  standard,  by  bringing  all  the  influences  of 
a  higher  civilization  to  bear  on  the  incoming  horde ; 
but,  when  the  occasion  recurs  every  year,  and  each 
spring  brings  a  new  horde,  and  the  effort  of  re- 
sistance has  to  be  continuously  kept  up,  the  work  will 
never  be  done.  The  higher  standard  might  resist  a 
few  long  attacks ;  but  persistent  attacks  will  wear 
out  the  energy  and  patience  of  the  defenders,  and 
reduce  them  to  a  sullen  acquiescence  in  a  lower 
standard  of  life.  On  the  other  hand,  if  we  accept 
the  easy  optimism  of  the  productivity  theory,  there 
is  no  wages  problem  to  be  faced.  We  may  encour- 
age immigration,  as  much  as  we  please;  for  the 
newcomer  will  not,  simply  because  he  cannot,  dis- 
place the  old  hand.  The  newcomer  will  be  paid 
according  to  the  work  he  is  able  to  do.  If  his  efifi- 
ciency  be  as  high  as  the  standard  efificiency  of  the 
trade,  he  will  be  paid  the  standard  wage,  no  matter 
what  his  manner  of  life  may  be.  Pauper  labor  is 
pauper  labor  because  it  is  inefificient ;  and  it  will  re- 


Imviigration  and  Wages. 


247 


IS 

re- 


main inefficient  probably  under  the  new  industrial 
conditions;  but  it  cannot  by  competition  reduce 
the  higher  wages  of  more  efficient  labor.  The  an- 
swer to  the  contention  that  immigration  may  preju- 
dicially affect  the  position  of  labor  practically  consists 
in  the  invention  of  a  new  style  of  economic  harmo- 
nies by  means  of  which  we  may  prove  that  fears  are 
groundless,  for  no  possible  evil  can  possibly  exist. 

A  question  of  fact,  however,  cannot  be  disposed 
of  in  such  an  airy  way.  Even  if  investigation  show 
that  immigration  docs  not  really  reduce  wages,  there 
is  at  least  some  ground  for  the  widespread  opinion 
that  it  has  this  tendency.  In  some  industries,  nota- 
bly the  textile  industries  of  New  England,  a  fall  in 
wages  has  coincided  with  an  influx  of  cheap  foreign 
labor  into  the  district  and  the  industries;  and  the 
trade-unions  have  undoubtedly  ground  for  their 
support  of  the  contract-labor  law  because  foreign 
labor  has  certainly  been  frequently  imported  to 
enable  the  employer  to  resist  the  demands  of  the 
union. 

In  the  first  place,  immigration,  although  it  has 
sadly  deteriorated  in  quality  in  the  last  decades  (and 
the  competition  of  the  lowest  grades  is  always  deadly, 
as  Mr.  Booth  has  pointed  out)  can  hardly  lower 
wages  because  of  the  actual  increase  in  the  number 
of  competitors.  The  volume  of  immigration,  great 
though  it  is,  and  composed  three  fourths  of  able- 
bodied  men  in  the  prime  of  life,  bears  only  a  small 
proportion  to  the  actual  body  of  labor — small  at 
least,  when  we  take  into  account  that  every  industry 


: 


!-  ! 


248 


TJic  Bargain  TJicory  of  Wages. 


3.?- 


% 


in  a  new  country  is  subject  to  the  law  of  increasing 
returns.  Though  the  average  annual  immigration 
has  increased  enormously  since  i860,  the  amount  of 
capital  invested  in  industry  and  the  total  produce  of 
indus  y  have  increased  much  more  rapidly.  In- 
duh..  /  has  developed  so  quickly  that  it  has  been 
able  to  absorb  all  the  immigration  :  in  part  the  rapid 
development  has  been  due  to  the  great  volume  of 
immigration.  As  the  West  fills  up,  the  power  of 
absorption,  on  the  part  of  the  United  States  at  least, 
will  probably  decrease ;  and  then  the  problem  set  by 
immigration  will  become  more  actual.  As  things 
are,  at  times  during  the  last  decade  it  has  seemed  as 
if  the  United  States  had  already  absorbed  to  satura- 
tion point.  The  filling  up  of  the  West  will  have  one 
important  consequence.  So  long  as  there  is  good 
land  available  in  the  quantity  desired  the  returns 
to  agricultural  labor  will  govern  city  wages,  but, 
as  the  country  fills  up,  the  wages  of  tiic  city,  mak- 
ing allowance  for  the  higher  efficiency  of  city  labor, 
will  come  to  be  standard  for  the  country.  Even 
now,  the  great  majority  of  the  immigrants  do  not 
go  West,  but  remain  at  the  port  of  entry,  or  herd 
in  a  few  of  the  larger  cities  where  chance  has  placed 
tneiii  and  circumstances  have  developed  a  suitable 
milieu  for  them.  In  these  cities  their  competition 
may  serve  to  lower  wages  for  their  class  of  work, 
and  indirectly  to  lower  wages  not  only  in  the  cities 
but  all  over  the  country,  provided  that  the  old  sup- 
ply of  labor  is  maintained  in  that  class. 

The  old  supply,  however,  is  not  being  maintained, 


11!   !:' 


The  Displacing  of  Native  Laborers.  249 


It  is  a  well-established  fact  that  the  native  workmen 
are  being  displaced  but  only  by  being  forced  up 
higher  in  the  scale.  In  the  same  way,  as  the  com- 
petition of  women  is  displacing  male  workers,  not 
by  degrading  them  but  by  forcing  them  to  seek 
employment  in  the  higher  occupations  which  the 
progress  of  science  is  constantly  opening  up,  the 
competition  of  immigrant  labor  has,  in  some  cases, 
forced  American  labor  into  new  channels  of  activity. 
It  might  even  be  more  correct  to  say  that  the  open- 
ing of  the  new  channels  for  American  labor  has 
created  the  vacuum  which  foreign  immigration  has 
flowed  in  to  fill.  It  has  been,  on  a  vaster  scale,  a 
case  of  suction  from  within,  rather  than  pressure 
from  without.  The  great  increase  of  immigration, 
in  the  early  eighties,  came  to  meet  the  demands  of 
a  period  of  railroad  expansion.  The  immigrant 
labor  performed  a  task  which  there  was  no  labor  in 
America  to  perform.  The  native  American  has,  in 
his  time,  performed  as  great  a  task.  He  has  cleared 
and  settled  the  land;  but  he  is  by  nature  an  indi- 
vidualist, and  has  never  shown  any  disposition  to 
labor  in  gangs.  American  labor  was  more  profitably 
and  more  congenially  employed ;  and  when  the  de- 
mand occurred  foreign  labor  was  practically  invited 
in.  The  great  volume  of  immigration  was  due  more 
to  American  necessities  than  to  European  poverty 
and  oppres<r'on.  That  there  have  been  individual  and 
local  hardships  to  native  labor  in  America  during 
the  process  cannot  be  denied ;  but  these  hardships 
are  such  as  lollow  every  economic  change. 


% 


\    3 


250 


The  Bargain  Theory  of  Wages. 


i  i'  1 


M 


fi; 


\'^  It' 


m 


*!"', 


X  ■     i 


n\ 


I ' 


The  whole  contention  for  restriction  of  immigrants 
has  been  based  on  the  tacit  assumption  that  for- 
eigners prefer  to  accept  lower  wages.  Few  men, 
when  they  argue,  arc  so  clear-sighted  as  the  Toronto 
mechanic  who  declared,  in  his  evidence  before  the 
Canadian  Labor  Commission,  that"  men  never  fight 
for  lower  wages,  but  try  all  they  can  to  get  higher 
wages."  *  Immigrants  may  be  willing,  daring  their 
short  apprenticeship  to  the  new  conditions  to  accept 
less  than  the  standard  rate  of  wages;  but  they  are 
"  exceptions  when  they  stick  to  that  tendency  right 
through."  t  It  must  be  surprising  to  the  supporters 
of  the  standard-of-comfort  theory  to  see  how  very 
soon  the  newcomers  rise  to  their  privileges,  and  re- 
gard high  wages  as  their  necessary  and  just  reward. 
Mr.  Gould  proves  in  his  pamphlet  TJie  Social  Con- 
dition of  Labor  that  the  foreigner  is  not  long  in  rising 
to  the  native-wage  standard.  Foreign  workmen  of 
British  or  German  origin,  instead  of  underselling 
the  native  workmen,  actually  receive,  on  the  whole, 
higher  wages,  partly  because,  in  the  displacing  pro- 
cess which  made  room  for  the  foreigner,  only  the 
less  intelligent  native  workers  had  been  left.  An 
influx  of  foreign  workmen  may  indicate  a  lower 
standard  of  efficiency,  but  is  rarely  the  cause  of  the 
lowering  of  the  standard.  The  influx  of  the  French 
Canadian?  into  the  New  England  mills  and  factories 
occurred  about  the  same  time  as  a  fall  in  wages  of 
the  native  workers;  but,  though  the  popular  con- 

*  Canadian  Labor  Commission,  "  Ontario  Evidence,"  p.  2, 
\Ibid.,  p.  367. 


I         I 


■, ! 


The  Wages  of  Foreign-Born  Laboi'crs,        251 


Tr 
Ihe 
Ich 
ies 
of 
in- 


clusion is  not  unnatural,  it  may  be  that  the  more 
intelHgent  of  the  textile  workers  had  been  displaced 
upwards,  and  that  those  who  remained  behind  were 
worth  only  the  lower  wages  they  received.  What 
is  true  of  the  workmen  of  British  or  German  origin 
is  true,  though  in  a  less  marked  degree,  of  even  the 
degraded  "  Dagoes,"  Poles,  and  Bohemians.  Even 
these  immigrants  show  very  little  tendency  to  people 
down  to  their  squalor.  Their  standard  of  life  may 
not  be  very  much  higher  than  when  they  landed; 
but  their  savings  bank  account  is.  The  great  eco- 
nomic objection  which  can  be  taken  to  this  class  of 
immigrant  is  not  that  they  reduce  wages  by  their 
low  standard,  but  that  they  save  too  much  and  spend 
too  little.''^  The  objection  has  especial  force  when, 
as  in  the  case  of  the  Italian  and  French-Canadian 
immigrants,  the  object  of  the  saving  is  to  acquire 
some  small  property  in  the  native  land  and  return 
thither,  as  soon  as  possible,  to  genteel  affluence. 
It  is  not  that  they  are  not  good  workmen,  or  that 
they  lower  the  wages  of  others  through  their  squalid 
mode  of  life ;  but  that  they  are  not  good  citizens, 
nor  ever  can  be,  so  long  as  they  cherish  the  hope  of 
leaving  the  country  when  their  savings  are  large 
enough.  When  the  immigrant  comes  with  the  in- 
tention of  settling,  his  standard  of  life  soon  rises. 
The  elevation  is  effected  in  a  comparatively  simple 
way.  The  family  ceases  to  be  the  wage-earning 
unit ;  and  with  the  continual  presence  of  the  mother 
in  the  home,  a  family  lif"  in  the  sense  in  which  it 

♦Connecticut  Bureau  of  Libor  Statistics,  Report,  1885,  p.  60. 


!  I 


i  < 
1 


"I 


lip 


Hi- 


|!^ 


If 


r 


M 


illl 


252 


77/^  Bargain  Theory  of  Wages. 


could  not  exist  before  begins.  Except  in  those 
cases,  such  as  the  French  Canadian  and  the  ItaHan, 
where  there  is  a  dehberate  intention  to  return  as 
soon  as  possible  to  the  native  country  to  enjoy  a 
cleared  patrimony,  the  female  members  of  the  im- 
migrant family  seldom  continue  long  to  go  out  to 
work  to  eke  out  the  earnings  of  the  head  of  the 
house.  No  consequences  in  industrial  life  seem 
surer  than  the  fact^  that  when  a  man  can  rely 
on  the  supplemental  earnings  of  his  wife  and  chil- 
dren his  own  wages  are  low.  In  many  cases,  the 
family  must  be  taken  as  the  wage-earning  unit; 
and  with  this  as  the  ground  of  comparison  it  does 
not  appear  that  wages  in  Germany  are  so  very 
much  lower  than  wages  in  America.  The  difference 
is  certainly  not  so  great  as  the  difference  between 
the  wages  of  the  German  and  the  wages  of  the 
American  workman.  When  the  German  workman 
becomes  an  American  immigrant  the  family  earnings 
remain  at  nearly  the  same  amount ;  but  the  amount 
is  no  longer  made  up  by  petty  contributions  from 
all  the  members  of  the  family.  The  head  of  the 
family  now  contributes  the  whole  amount,  for,  in- 
fluenced by  the  example  of  the  country,  he  has  in 
great  measure  ceased  to  send  his  wife  out  to  the 
workshop. 

The  contention  that  the  immigration  of  hordes  of 
men  with  low  standards  of  living  must  eventually 
reduce  wages  is  based  on  Ricardo's  assumption  that 
wages  must  fall,  which,  in  its  turn,  is  based  on  the 
Malthusian  doctrine  that  men  will  necessarily  pe  pie 


The  Standard  of  Living, 


253 


down  to  their  standard  of  comfort.     On  the  con 
trary,  however,  the  margin  for  saving  which  even  the 
most  degraded,  and  least  desirable  from  a  political 
pomt  of  view,  possess,  shows  that  the  Malthusian 
assumption  is  not  directly  and  unconditionally  true 
If  we  give  up  the  Malthusian  doctrine  behind  Ri* 
cardo  s   assumption,   the  contention   that   the   low 
standard    of    living    among    the    immigrants    must 
lower  wages  for  native  labor  loses  much  of  its  force 
bo  long  as  the  immigrants  do  not  people  down  to 
their  standard,  the  lowness  of  the  standard  may  be 
a  social  evil  of  the  first  magnitude;  but  it  does  not 
reduce  the  wages,  and  consequently  cannot  reduce 
the  standard  of  the  native  workman. 


lift 


in 


F' 


m- 


CHAPTER  VII. 


TRADE-UNIONS  AS  A  WAGES  FACTOR. 


M. 


I  i, 


MS. 


i 


'  i 


I: 


m 


;(':: 


THE  Austrian  school,  in  their  efforts  to  establish 
the  theory  of  distribution  that  the  value  of 
labor  is  reflected  back  from  the  value  of  the  con- 
sumption goods  it  is  employed  in  making,  have 
overlooked  one  important  factor  in  the  determina- 
tion of  wages.  It  is  not  only  overlooked  but,  by 
critical  implication,  rejected  by  Dr.  Smart  in  his 
recent  Studies  in  Economics.  This  rejection  is  the 
more  remarkable  that  it  not  only  prevents  them 
from  recognizing  one  of  the  most  potent  facts  in 
modern  industrial  life,  and,  thus,  gives  an  air  of  un- 
reality to  their  whole  theory,  but  also  is  inconsistent 
with  their  own  theory.  The  doctrine  of  a  living 
wage  they  rej";ct  because  it  seems  to  give  labor  a 
predetermined  value;  yet  on  the  grounds  of  their 
own  theory,  the  standard  of  a  living  wage  remains 
one  of  the  most  important  determinants  of  wages. 

On  page  6i,  of  the  Introduction  to  the  Theory  of 
Value,  by  Dr.  Smart,  immediately  following  the 
enunciation  of  the  law  that  price  is  determined  some- 

254 


|-; 


* 


TJie  Lazv  of  the  Marginal  Pair, 


255 


)lish 

2  of 

con- 

lave 

lina- 
by 
his 
the 
lem 
in 
un- 
tent 
zing 
or  a 
heir 
ains 
^s. 

of 
the 

me- 


where  between  the  subjective  valuations  of  the  last 
buyer  and  the  last  seller,  who  together  are  pictu- 
resquely called  "  the  Marginal  Pair,"  there  stands 
this  paragraph : 

"  But  in  the  business  world  itself  there  is  one  great 
simplification  of  the  law  of  the  marginal  pair.  In  mod- 
ern industry  ])roducers  do  not  make  for  themselves,  but 
for  the  market,  and  the  amount  of  their  own  products 
which  they  could  use  in  their  own  consumption  is  insig- 
nificant. Consequently  it  may  almost  be  said  that  such 
goods  have  no  subjective  value  for  the  sellers,  and  we 
lose  one  whole  side  of  our  valuations  .  .  .  practically, 
then  our  law  takes  this  form  :  Price  is  determined  by 
the  valuation  of  the  Marginal  Buyer."  * 

It  may  be  true,  as  Dr.  Smart  contends,  that  the 
value  of  labor  is  simply  a  case  of  the  general  law  of 
value,  and  therefore  entirely  dependent  on  utility, 
having,  therefore,  "  no  predetermined  value  ";  but 
it  does  not  follow  therefrom  that  the  wages  problem 
is  a  simple  or  simplified  case  of  the  general  law. 
Labor  would  get  its  "  value  entirely  from  what  it 
produces, "f  only  under  the  condition  that  labor  is  a 
good  of  precisely  the  same  character  as  all  other 
production  goods  having"  no  subjective  value  for 
the  sellers."  The  very  existence  of  the  modern 
labor  question  is  proof  enough  that  labor  is  no.  sub- 
ject to  this  great  simplification  of  the  law  of  the 
Marginal  Pair.     The  employer,  the  marginal  buyer 

*  Smart,  Introduction  to  the  Theory  of  Fa/ue,  p.  61. 
f/dtJ.,  p.  79. 


256 


The  Bargain  TJicory  of  Wages. 


H  n 


iir 


i: 


m. 


n- 


I  i 


% 


in  this  case,  has  not  the  only  word  to  say  in  the  de- 
termination of  the  price  of  labor.  The  seller  claims 
vehemently  that  he  must  be  consulted  and  the  trade- 
union  movement  is  an  effort  to  give  force  to  his 
claim.  The  valuation  of  the  buyer,  which  is,  in 
effect,  the  estimate  which  the  employer  makes  of 
the  eflficicncy  of  the  labor,  is  only  one  of  the  deter- 
minants of  wages.  Labor,  in  spite  of  sentimental 
objections,  is  undoubtedly  a  commodity  which  is 
bought  and  sold.  It  serves  no  useful  purpose  to 
speak  of  selling  the  fruits  of  labor.  Labor  is  a  com- 
modity subject  to  market  conditions;  but  it  is  not 
therefore  true  that  labor  is  a  commodity  resembling 
in  all  essential  respects  every  other  commodity  in 
the  market. 

Labor  differs  from  most,  if  not  all,  other  com- 
modities in  retaining,  even  under  modern  industrial 
conditions,  its  subjective  value  to  the  seller.  We 
cannot  separate  the  labor  and  the  laborer.  It  is 
labor  that  is  bought  and  sold  but,  with  the  labor, 
goes  the  laborer.  Therefore  instead  of  a  great 
simplification  we  have  a  great  complication.  The 
subjective  valuation  placed  upon  labor  is  not  en- 
tirely derived  from  what  it  produces  or  from  that 
which  is  obtained  in  exchange  for  its  product.  The 
direct  utility  to  the  laborer  of  that  which  he  sells 
may  not  be  very  great.  Modern  agrarian  con- 
ditions deny  to  the  great  majority  of  laborers  the 
possibility  of  being  able  to  consume  what  they  pro- 
duce. The  peasant  proprietor,  or  even  the  modern 
farmer,  may  produce  all  that  he  consumes  and  pro- 


m 


Labor  not  a  Simple  Case  of  Value. 


25; 


duce  little  besides  what  he  does  consume;  but,  to 
the  great  majority  of  laborers  it  is  a  physical  im[)os- 
sibility  for  them  to  consume  more  than  an  infinitesi- 
mal fraction  of  what  they  produce.  It  does  not, 
however,  involve  any  unjustifiable  stretch  of  lan- 
guage to  say  that,  since  labor  and  the  laborer  cannot 
be  separated  in  fact,  labor  has  a  very  definite  sub- 
jective value  put  upon  it,  and  with  this  estimate 
upon  it,  enters  the  market.  Even  if  permission  be 
not  given  to  say  that  labor  retains  its  subjective 
valuation,  under  modern  industrial  conditions,  yet, 
without  fear  of  contradiction,  we  may  say  that  labor, 
involving  disutility,  demands  a  return  of  sufficiently 
great  utility,  at  least  to  counterbalance  the  disutility 
incurred ;  which,  if  it  be  not  precisely  the  same  as  a 
direct  subjective  estimate,  is,  in  practice  precisely 
equivalent  to  it. 

The  law  of  the  value  of  labor  is  the  law  of  general 
value  without  the  great  simplification ;  and  the  price 
of  labor  will  lie  somewhere  between  the  subjective 
estimates  of  the  buyer  and  the  subjective  estimates 
of  the  seller.  The  estimate  of  the  buyer  of  labor, 
/.  €.,  the  employer  of  labor,  will  form  the  upper 
limit :  the  estimate  of  the  seller  will  form  the  lower 
limit.  Between  these  limits,  the  value  of  labor,  or 
the  wages  of  the  laborer,  will  be  determined ;  and 
the  result  will  depend  on  the  comparative  strength 
of  the  bargainers.  That  the  seller  is  often  at  a  great 
disadvantage  because  he  must  sell,  while  the  buyer 
need  not  buy,  does  not  disprove  the  statement. 
This  hard  fact  is  one  of  the  forces  which  go  to  de- 


4i 


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258 


Tlic  Bargain  TJicory  of  Wages, 


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tcrmine  what  the  subjective  estimate  may  be;  and 
one  of  the  forces  which  determine  where  between 
the  limits  the  actual  price  of  the  laborer  shall  lie. 
The  upper  limit  will  be  determined  by  the  employer's 
estimate  of  the  efficiency  of  labor  working  in  co- 
operation with  machinery  and  other  instruments  of 
capital.  The  lower  limit  cannot  be  a  physical  mini- 
mum, as  Dr.  Smart  argues  in  his  study  of  the  liv- 
ing wage,"^"  or  even  a  fixed  limit.  The  subjective 
estimate  placed  on  labor  by  the  laborer  is  essentially 
individual  and  is  not  so  greatly  affected  as  the  sub- 
jective estimate  on  other  commodities  is,  by  the 
social  estimate  placed  on  it.  Labor  is  an  individual 
exertion ;  and  the  estimate  which  each  man  places 
on  his  labor  depends  upon  the  irksomeness  of  labor 
to  himself;  and  the  degree  of  irksomeness  will 
hardly  ever  be  the  same  for  two  different  laborers  or 
even  for  the  same  laborer  on  two  different  days. 
The  lower  limit  of  wages  is  not  an  absolute  limit. 
Any  circumstance  which  intensifies  the  necessities 
of  the  laborer,  every  hostage  given  to  fortune,  tends 
to  lower  the  minimum.  The  lower  limit  is,  after  all 
is  said,  an  opinion  the  laborer  has  of  his  needs  and 
his  merits,  which  for  the  time  being  he  is  prepared 
to  stand  by,  and  for  which,  if  need  be,  he  is  pre- 
pared to  fight.  It  may  be  a  physical  niinimum  or  it 
may  be  a  standard  of  comfort;  but  in  neither  case 
is  it  a  fixed  limit.  Necessity  of  competition  may 
compel  him  to  lower  his  estimate  and  accept  a  lower 
price  for  his  labor.     The  laborer,  as  Thornton  in- 

*  Smart,  StuiHt's  in  Economics,  chap.  i. 


!r   i 


ill 


The  Limits  of  Wages. 


259 


sistcd,  cannot  stand  out  for  his  price.  He  must  live 
by  his  hibor;  and  the  body  is  more  than  raiment. 

So  lon<^  as  wealth  is  increasing  twice  as  fast  as 
population,  and  the  total  product  increases  more 
quickly  than  the  share  of  it  paid  to  the  laborer,  there 
is  not  much  danger  that  the  general  body  of  laborers 
will  be  called  upon  to  fight  to  maintain  their  sub- 
jective estimate.  Wages  have  risen,  and  are  likely 
to  continue  rising.  The  subjective  estimate  of  the 
laborer  has  risen  with  the  risr:  of  wages:  his  standard 
of  comfort  is  higher,  and  his  standard  of  subsistence 
is  higher.  Whether  the  rise  in  the  standard  would 
be  maintained  through  a  long  period  of  depression 
cannot  be  determined  a  priori ;  and  it  will  be  well  if 
we  are  never  called  on  to  draw  a  conclusion  a  pos- 
teriori. It  is  not  necessary  that  the  limits  should 
be  fixed  and  absolute.  For  the  time  being  and 
under  the  ordinary  pressure  of  circumstances,  these 
limits  have  the  same  effect  as  if  they  were  immov- 
able. With  contingencies  we  cannot  wisely  deal. 
Between  those  two  limits  the  value  of  labor  will  be 
determined  by  the  comparative  necessities  of  the 
bargainers  and  by  the  comparative  knowledge  and 
skill  in  bargaining  which  each  party  brings  to  bear. 
If  we  represent  the  upper  limit  by  I2x,  and  the 
lower  limit  by  qx,  the  law  of  value  declares  that  the 
value  of  labor  will  lie  between  9X  and  I2x:  whether 
wages  are  lox  or  iix  depends  on  the  comparative 
strength  of  the  bargainers. 

Theoretically,  any  force  which  operates  on  the 
value  of  labor  may  tend  either  to  raise  or  to  lower 


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wages;  and  in  practice,  in  individual  cases,  wages 
may  fall  as  well  as  rise.  Practically,  however,  the 
long  steady  advance  of  both  nominal  and  real  wages 
has  so  accustomed  us  to  consider  only  the  more 
hopeful  side  of  the  wages  question  that  we  reject  as 
merely  theoretical  any  discussion  of  falling  wages. 
Wages,  according  to  the  view  set  forth  above,  may 
rise  in  throe  ways,  viz.,  by  increasing  the  seller's 
valuation,  by  increasing  the  buyer's  valuation,  or  by 
improving  the  position  of  the  laborer  as  a  bargainer. 
To  put  the  same  statement  symbolically,  we  may 
say  that  wages  may  rise  if  9X  is  raised  to  lox,  I2x 
remaining  stationary;  or  9X  remaining  stationary, 
if  I2X  increases  to  13X;  or  again,  the  limits  remain- 
ing the  same,  if  the  laborer's  position  is  so  much 
improved  that,  in  the  "  higgling  "  of  the  market,  he 
can  obtain  better  terms,  iix,  say,  instead  of  lox. 
\Vc  may  treat  each  of  these  methods  separately, 
tliough,  as  a  matter  of  fact,  they  react  on  each  other 
and  seem  to  change  simultaneously.  We  can  hardly 
improve  the  position  of  the  laborer  as  a  bargainer 
without  at  the  same  time,  or  previously,  raising  his 
estimate  of  what  his  work  is  worth  to  him :  nor  can 
we  raise  the  lower  limit  without  sticngthening  the 
laborer  in  his  bargaining.  The  upper  limit  is  less 
subject  to  reciprocal  influences.  It  is  the  employer's 
estimate,  and  is  less  likely  to  change  than  the  lower 
limit.  Wages  can  hardly  rise  above  the  employer's 
estimate  based  on  the  efficiency  of  the  labor.  What 
he  pays  is,  naturally,  no  perfect  guide  to  what  he 
might  pay  if  necessary,  but  the  upper  limit,  though 


1 


VariatioNS  in  the  Limits. 


261 


necessarily  to  the  worker  an  unknown  quantity,  is 
none  the  less  a  very  determinate  quantity.  There 
is  no  necessity  upon  the  employer  to  allow  this  limit 
to  be  passed  as  there  may  be  on  the  employee  to 
accept  less  than  the  lower  estimate.  Yet  there  is  a 
tendency  for  the  limits  to  move  together,  to  advance 
together  or  to  fall  back  together,  like  the  two  ends 
of  a  piston  rod.  They  keep  their  distance  because 
an  increased  subjective  estimate  by  the  laborer  of 
the  worth  of  his  labor  makes  him  a  more  effic'ent 
workman ;  and  whether  he  is  or  is  not  paid  accord- 
ing to  his  efficiency  it  is  economically  possible  for 
him  to  demand  the  higher  wage  without  bringing 
industry  to  a  standstill. 

The  laborer  can  only  by  increasing  his  efficiency 
raise  the  upper  limit  of  wages;  and  practically  the 
working  classes  as  a  whole  have  been  content  to  try 
to  raise  wages  by  raising  the  lower  limit  below  which 
it  is  difficult  for  wages  to  fall,  or  by  improving  their 
position  as  bargainers.  These  methods  fortunately 
tend  to  make  the  laborer  more  efficient  and  thus  in- 
directly raise  the  upper  limit  of  wages ;  but  they  do  so 
indirectly.  Every  social  and  moral  force,  every  law 
and  custom,  every  measure  of  education  and  mental 
improvement  which  tends  to  increase  the  laborer's 
dignity  and  self-respect,  every  change  in  his  environ- 
ment and  in  the  public  opinion  regarding  his  mode 
of  life  and  work,  every  improvement  in  the  sani- 
tary conditions  of  workshop  or  dwelling-place  which 
tends  to  make  a  more  human  life  a  possibility  will 
act  in  the  direction  of  raising  his  estimate  of  his 


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262 


T/ic  Bargain  Theory  of  Wages.. 


work,  because  raising  his  estimate  of  himself.  To 
increase  the  laborer's  self-respect  is  one  of  the  surest 
ways  of  raising  his  wages;  and  this,  apart  from  the 
effect  which  increased  sclf-rospect  will  have  on  effi- 
ciency. On  the  other  hand,  an  increased  efficiency 
of  labor  tends  to  raise  the  upper  limit.  Increased 
technical  skill  and  improved  general  education 
render  it  possible  to  employ  new  and  in  .proved 
machinery  and  to  adopt  processes  of  manufacture 
which  a  lower  level  of  general  education  had  made 
it  uneconomical  to  emplt  \  From  the  resulting 
increased  product  the  employer  is  able,  though  not 
necessarily  disposed,  to  hand  over  a  larger  share  to 
labor;  and  can  hand  over  a  larger  share  without 
economic  danger  to  industry.  There  does  not  seem 
very  much  ground  for  the  position  taken  by  many 
modern  writers  on  wages,  that  remuneration  is 
strictly  proportioned  to  efficiency  if,  at  any  rate, 
this  be  taken  to  mean  that  wages  and  efficiency  are 
almost  convertible  terms.  That  the  employer  can 
pay  higher  wages  is  no  economic  reason  why  he 
should  pay  them ;  and  there  is  often  very  little  rea- 
son to  believe  that  he  does  pay  them.  It  is  true 
that  both  wages  and  efficiency  have  increased 
during  the  last  half  century  but  we  cannot  take  the 
one  as  the  measure  of  the  other.  Indeed,  when  we 
consider  that  the  amount  of  capital  employed  has 
increased  much  faster  than  the  amount  of  the  prod- 
uct, and  that  wages  have  increased  in  a  higher  ratio 
than  either,  it  is  evident  that  efficiency  and  wages 
do  not  necessarily  correspond.     What  we  can  say 


The  Reciprocal  Influence  of  the  Limits.       263 


is,  that  out  of  the  increased  product  the  employer 
may  and  can  pay  a  larger  absolute,  if  not  a  larger 
relative  share  to  labor. 

The  most  hopeful  feature  of  the  industrial  ^tua- 
tion  is  that  "these  two  methods  of  increasing  wages 
react  on  each  other.  Increased  wages,  and  still 
more  increased  leisure,  not  only  help  to  promote 
a  higher  degree  of  self-respect  and  of  human  dig- 
nity but  also  to  raise  the  standard  of  efificiency.  It 
would  be  impossible  to  measure,  even  had  we  the 
aid  of  definite  statistics,  how  far  a  better  man  is  a 
better  workman ;  but  it  is  none  the  less  true,  though 
we  cannot  measure,  that  whatever  tends  to  raise  the 
workers  self-respect,  whatever  increases  his  frugality 
and  sobriety,  whatever  quickens  his  intelligence  and 
enlightens  his  moral  sense,  has  a  direct  and  immedi- 
ate effect  in  raising  his  efficiency.  To  raise  the 
seller's  valuation  of  what  he  has  to  sell  is  one  very 
sure,  though  indirect,  way  of  raising  the  buyer's 
estimate  of  what  he  wishes  to  buy ;  and  any  increase 
of  wages  obtained  as  a  result  of  the  moral  elevation 
of  the  workingman,  is  doubly  secured  to  him  against 
reversal. 

Trade-unionism  has  as  yet  done  little  to  raise  the 
ftandard  of  efficiency  directly ;  although  it  is  possible 
by  means  of  encouragement  to  technical  education 
that  much  might  be  effected.  So  far  the  effect  of 
many  trade-union  regulations  and  of  the  notion, 
which  Mr.  Schloss  calls  the  theory  of  the  Lump  of 
Work,  that  inspires  those  regulations  has  rather  been 
to  discourage  any  tendency  towards  increased  effi- 


I 


264 


The  Bargain  Theory  of  Wages. 


li 


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If. 


ill. 


cicncy.  While  the  idea  persists  that  the  man  who 
does  his  best  is  a  traitor  to  the  cause  of  labor,  trade- 
unions  will  do  little  directly  to  make  it  possible  to 
raise  the  upper  limit  of  wages.  Indirectly,  however, 
trade-unionism  has  done  much  to  raise  the  standard 
of  work.  Not  only  has  it  insisted  that  each  member 
of  the  union  shall  earn  the  standard  wage,  but,  as 
Prof.  Marshall  points  out,*  by  quickening  the  intel- 
ligence, by  elevating  the  dignity  of  labor  and  pro- 
moting, in  Parliament  and  elsewhere,  measures 
which  increase  the  self-respect  of  the  laborer,  it  has 
undoubtedly  contributed  to  an  improvement  of  the 
quality  of  the  work  done.  It  is,  however,  only  in 
this  indirect  way,  that  trade-unionism  has  been  able 
to  raise  the  upper  limit  of  wages.  By  its  influence, 
the  lower  limit  may  rise  from  9X  to  (say)  lox,  and, 
indirectly,  the  upper  limit  way  have  a  tendency  to 
rise  to  13X;  but  the  influence  is  neither  so  great  nor 
so  unique  as  to  justify  the  claims  of  enthusiastic 
unionists  or  a  separate  treatment  of  the  trade-unions 
as  a  factor  in  the  labor  market.  Its  influence  in 
raising  the  self-respect  of  the  labor  is  not  much 
more  important  than  the  influence  of  the  temperance 
movement,  or  the  extension  of  the  franchise;  and 
there  can  be  no  doubt  that  a  higher  standard  of 
popular  education  does  much  more  to  increase  in- 
dustrial efficiency  than  all  the  multiplicity  of  trade- 
unions  and  working-class  associations. 

It  is  in  connection  with  the  third  method  of  rais- 
ing wages  that  trade-unionism  chiefly  merits  treat- 

*  Economics  0/  Industry,  bk.  vi.,  cxiii. 


Trade  Unionism  and  Wages  Bargaining.      265 


ment  as  a  powerful  factor  in  the  Wages  Problem. 
The  influence  of  the  unions  has  been  generally 
directed  rather  to  making  the  best  use  of  what  at 
present  exists  than  to  altering  the  status  quo.  Their 
influence  is  most  readily  discernible  in  the  endeavor 
to  improve  the  laborer's  position  as  a  bargainer. 
Except  in  the  case  of  the  subjective  disutilities  of 
labor  which  arise  from  the  material  conditions  in 
which  the  laborer  works,  trade-unionism  has  rarely 
attempted  the  more  difficult  task  of  raising  the  limits 
of  wages.  The  result  is  too  remote  and  can  hardly 
be  foreseen.  The  steps  to  be  taken  to  make  qx, 
iqx,  or  to  raise  i2xto  13X,  do  not  readily  commend 
themselves  to  the  average  member  of  the  union  as 
something  for  which  he  ought  to  make  sacrifices. 
The  unions,  as  we  shall  see,  must  appeal  to  the 
fighting  instinct  in  their  members  to  maintain  disci- 
pline ;  and  the  desirability  of  legitimately  raising  the 
limits  within  which  wages  are  determined  has  nevei* 
been  a  matter  of  contention.  The  unions  have  con- 
fined themselves  to  the  more  obvious  task  of  striving 
to  secure  that  as  large  a  portion  of  the  difference 
between  the  two  limits  as  possible  should  come 
to  the  wage  earner.  The  distribution  of  this  differ- 
ence depended  not  on  the  strength  of  the  limits 
to  resist  attack,  but  on  strength  of  the  bargainer  p 
and  the  object  of  trade-union  policy  has  been  to 
strengthen  the  laborer  as  a  bargainer  in  the  labor 
market. 

The  laborer,  bargaining  in  his  own  strength,  is 
subject  to  serious  disabilities.     Usually  he  has  no 


.     I 


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266 


The  Bargain  Tlicory  of  Wages, 


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reserve  fund  to  enable  him  to  "  stand  out,  as  all 
other  sellers  do,  for  his  price."  * 

"  A  landlord,"  says  Adam  Smith,  "  a  farmer,  a  master 
manufacturer,  or  merchant,  though  they  did  not  employ 
a  single  workman,  could  generally  live  a  year  or  two 
upon  the  stock  which  they  have  already  accjuired. 
Many  workmen  could  not  subsist  a  week,  few  could 
subsist  a  month,  and  scarcely  any  a  year  without  em- 
ployment In  the  long  run  the  workman  may  be  as 
necessary  to  his  master  as  his  master  is  to  him,  but  the 
necessity  is  not  so  immediate."  f 

It  is  the  immediacy  of  the  necessity  which  makes 
all  the  difference  in  the  bargaining.  The  laborer 
must  sell  to-day :  the  employer  need  not  buy  till  to- 
morrow. To  the  master  it  is  only  a  question  of 
profits :  to  the  laborer  it  is  a  question  of  life.  Trade- 
unions,  with  their  out-of-work  funds,  enable  the 
laborer  to  stand  out  for  his  price,  as  other  sellers 
do.  They  practically  endow  the  laborer  with  a  re- 
serve ;  and  thus  enable  him  to  bargain  with  the  em- 
ployer on  more  equal  terms.  This  is  one  great 
disability  they  remove,  in  part  at  least ;  but  it  is  not 
the  greatest  to  which  the  laborer  is  subject.  The 
individual  laborer  is  not  simply  set  over  against  the 
employer.  He  must  sue  for  work  as  one  of  a 
crowd.  When  two  men  run  after  one  boss,  said 
Cobden,  wages  fall;  and  the  first  clause  is  more 
often  realized  than  the  second  of  his  much  quoted 

*  Thornton,  On  Labor ^  bk.  ii.,  c.  i. 
\  Wealth  of  Nations,  p.  28, 


I 


The  Disabilities  of  the  Laborers. 


267 


dictum.  The  laborer  may  be  endowed  with  a  re- 
serve, and  may  stand  out  for  his  price,  as  other 
sellers  do ;  but  the  competition  for  employment  may 
be  so  great  that  his  place  is  filled  while  he  stands 
out.  No  individual  workman  is  indispensable. 
"  In  the  long  run,"  to  repeat  the  sentence  from 
Adam  Smith,  "  the  workman  may  be  as  necessary 
to  his  master,  as  his  master  is  to  him ;  but  the  neces- 
sity is  not  so  immediate."  Labor  is  indeed  indis- 
pensable, but  no  individual  is.  II  n  y  a  pas  d'  homme 
ntfcessaire,  Matthew  Arnold  (as  he  tells  us),  was  fond 
of  quoting  to  the  most  complacent  people ;  and  the 
lower  we  go  in  the  ranks  of  industry,  the  truer  the 
doctrine  is.  This  is  the  reason  why  strikes  among 
unskilled  laborers  are  so  rarely  successful.  Unskilled 
labor  may  be  necessary  and  indispensable ;  but  no 
unskilled  laborer  ever  is.  His  place  can  be  too 
easily  filled  and  his  services  as  readily  rendered  by 
another.  The  object  of  trade-union  policy,  through 
all  the  maze  of  conflicting  and  obscure  regulation-, 
has  been  to  give  to  each  individual  worker  some- 
thing of  the  indispensability  of  labor  as  a  whole. 
Had  the  unions  power  as  they  have  ambition  they 
might  rule  the  industrial  world.  That  their  policy 
has  not  effected  more  than  it  has  is  due  partly  to  the 
small  proportion  of  the  workers  included  within  their 
numbers,  and  partly  to  certain  natural  limitations 
to  their  power.  They  could  not  succeed  in  engross- 
ing the  whoij  of  the  product  of  industry  because  the 
master  is,  in  present  industrial  conditions,  as  neces- 
sary to  the  laborer  as  labot  is  indispensable  to  the 


I 


Li,l,uapii 


268 


The  Bargain  Theory  of  Wages. 


master.  A  large  measure  of  success  in  their  policy 
would  probably  result  in  a  diminution  of  the  de- 
mand for  labor  owing  to  the  conversion  of  circulat- 
ing into  fixed  capital  and  the  adoption  of  labor-saving 
machinery.  There  is  small  risk  of  their  policy  be- 
coming dangerously  successful.  The  natural  limita- 
ti  jns  to  the  policy  quickly  check  any  excess  of 
zeal. 

The  province  of  trade-union  action  is  the  strength- 
ening of  the  position  of  the  laborer  as  a  bargainer, 
the  enabling  him,  in  particular,  to  resist  that  pressure 
of  circumstances  of  which  employers  might  be  ready 
to  take  advantage.  In  the  useful  p'  'ase  given  us 
by  Mr.  Sidney  Webb,  the  essence  of  trade-unionism 
is  "  collective  bargaining."  More  or  less  uncon- 
sciously, all  the  regulations  of  the  union  have  this 
in  view ;  and  most  of  the  customs  and  prejudices  of 
the  trade-union  world  are  inspired  by  this  idea. 
The  solidarity  of  labor  for  which  they  strive  is  only 
a  means  to  collective  bargaining;  and,  with  this  in 
view,  they  strenuously  oppose  many  reforms  which 
would  probably  secure  great,  though  temporary  ad- 
vantages for  at  least  a  large  number  of  workers. 
They  oppose  any  scheme,  however  enticing  or 
philanthropic,  which  would  have  as  one  of  its  re- 
sults the  separation  of  the  individual  workman  from 
his  fellow  workers.  They  will  not  allow  grading  of 
workers  according  to  ability,  although  the  demon- 
strated result  is  to  make  it  increasingly  difficult  for 
older  men  to  obtain  any  work  when  they  no  longer 
have  the  physical  strength  to  earn  the  trade-union 


Collective  Bargaining. 


269 


tt 


minimum.''  They  object,  with  the  success  of  the 
avowed  policy  of  the  South  Metropolitan  Gas  Com- 
pany before  their  eyes,  to  any,  and  every,  scheme 
of  profit  sharing:  such  schemes,  however  profitable 
they  may  prove  to  the  individual  workmen,  having, 
as  their  result,  if  not  as  their  motive,  the  detaching 
of  a  section  of  workers  from  their  fellows.  They 
are,  with  some  exceptions,  opposed  to  piece  work, 
because  it  offers  a  standing  temptation  to  the  indi- 
vidual to  set  the  pace  of  work  too  fast  for  his  weaker 
or  less  skilled  fellow  workers.  As  a  body,  they  will 
not  hear  of  measures  which  allow  contracting  out ; 
because  of  the  inevitable  effect  on  the  solidarity  of 
labor.  Their  aim  is  to  compel  the  employers  to  deal 
with  their  men  collectively.  The  history  of  the 
growth  of  their  power  is  simply  the  history  of  the 
giowing  public  and  legal  recognition  of  their  right 
to  represent  the  collective  interests  of  their  members. 
From  first  to  last,  this  object  has  been  kept  in  view ; 
and  the  object  is  as  important  in  the  present  day  as 
ever  it  was.  Divide  and  govern  has  ever  been  the 
policy  of  the  master.  To  treat  with  each  individual 
as  an  individual  pnd  to  ignore  the  trade-union  which 
claimed  to  represent  him,  has  always  been  the  prac- 
tice; now  it  is  also  the  avowed  policy.     Masters* 


associations  have  been  formed  to 


fight 


the  trade- 


*  The  Halifax  (Nova  Scotia)  Shipwrights  and  Caulkers  Association 
allow  men  over  sixty  to  work  in  the  trade  for  what  they  please.  If 
an  individual,  however,  chooses  to  remain  in  the  society  after  he  has 
reached  sixty  years  he  is  subject  to  the  usual  penalty  if  he  accepts  less 
than  the  Union  pay,  $2.50  a  day.  Royal  Commission  (Canada)  on 
the  Relations  of  Capital  and  Labor,  Nova  Scotia  Evidence,  p.  108. 


270 


The  Bargain  Theory  of  Wages. 


i:f' 


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unions  with  their  own  weapons.  The  employers 
maintain,  exclusively  for  their  own  purposes,  as  they 
avow,  Associations  of  Free  Laborers,  so  called,  al- 
thou^Mi  the  government  and  management  are  car- 
ried on  by,  and  for  the  interest  of,  persons  who  are 
not  members.  These  associations  are  designed  to 
permit  the  masters  to  treat  with  all  workmen  as  in- 
dividuals, in  contempt  of  the  unions. 

The  trade-unions  have  not,  so  far,  been  very  suc- 
cessful in  carrying  out  their  policy.  After  nearly 
three  quarters  of  a  century  of  agitation,  the  English 
unions  secured  a  modified  recognition  of  their  posi- 
tion. The  right  to  combine  was  admitted,  and  legal 
protection  against  their  own  officers  was  accorded ; 
but  little  else  has  been  gained.  Public  opinion, 
occasionally  and  spasmodically,  allows  the  right  of 
the  unions  to  treat  for  the  men.  Here  and  there,  a 
more  enlightened  employer  has  recognized  that  it  is 
better  to  deal  with  a  strong  union  than  with  indi- 
vidual workmen ;  but  as  yet  the  unions  Have  not 
won  any  legal  locus  standi  as  the  representatives  of 
their  members.  It  is  still  held  in  law  that  there  is 
a  separate  contract  between  the  employer  and  each 
of  his  employees.  The  union  may  order  a  strike; 
but  before  the  strike  begins  each  individual  employee 
must  give  separate  notice  of  the  termination  of  his 
individual  contract.  The  union  is  not  competent  to 
give  legal  notice  for  its  members;  and  a  collective 
strike  may  legally  take  place  only  after  individual  no- 
tice has  been  given.  To  obtain  this  legal  position,  as 
the  representatives  of  the  members,  the  trade-union 


his 
to 
:ive 
no- 
,  as 
ion 


The  Membership  of  the  Unions. 


271 


leaders  arc  still  striving;;  and  until  this  recognition 
is  obtained,  collective  bargaining  will  not  become, 
even  between  the  limits,  a  complete  determinant  of 
wages. 

The  reason  why  this  legal  recognition  has  not  been 
obtained  is  that  the  trad«"-unionists  do  not,  in  many- 
trades,  form  a  large  prop.  rtion  of  the  workers.* 
There  is  a  natural  hesitation  in  committing  to  a 
fractional  proportion  the  regulation  of  the  whole  of 
industry.  It  is  not,  however,  necessary  for  the 
practical  success  of  the  policy  of  collective  bargain- 
ing that  the  whole  of  labor  should  be  included  within 
the  unions;  and  hitherto  the  union  policy  has  been 
more  successful  than  tlie  membership  seems  to  have 
warranted.  This  is  possibly  due  in  part  to  the  fact 
that  the  membership  has  been  made  up  from  the 
best  workmen  in  the  trades,  who  might,  in  any  case, 
have  obtained  the  rise  of  wages  which  they  disinter- 
estedly attribute  to  the  union  policy;  and,  partly, 
also,  to  the  fact  that  the  full  strength  of  trades- 
unionism  is  not,  at  most  times,  adequately  repre- 
sented by  numbers.  The  membership  varies  a  great 
deal  according  to  the  necessities  of  the  industrial 
world.  In  times  of  peace  and  prosperity,  the 
membership  will  hardly  maintain  itself  at  fighting 
strength.  In  times  of  threatening  it  receives  large 
accessions.  There  seems  to  be  a  kind  of  nucleus 
of  the  labor  army  continually  under  arms  while  the 

*  According  to  Mr.  Frederick  Wicks  {Nineteenth  Century,  1891) 
about  II  per  cent,  of  the  working  males  over  twenty  in  the  United 
Kingdom  are  enrolled  in  the  unions. 


?! 


272 


The  Bargain  Theory  of  Wages. 


\\. 


f! 


\ 


large  part  of  its  fighting  strength  is  in  reserve  and 
does  not  rem.iin  with  the  colors.  This  reserve  is 
not  so  eiffective  as  the  stalwarts  who  remain  all  the 
time  under  arras  but  it  has  its  effect  in  maintaining 
a  large  degree  of  s>  idarity  and  in  giving  greater 
authority  to  the  demands  made  by  the  standing 
army.  The  knowledge  that  danger  brings  out  the 
reserve  checks  aggression  which  apparent  numerical 
weakness  invites. 

At  the  same  time,  this  habit  of  irregular  service  is 
almost  necessarily  fatal  to  discipline,  and  shuts  out 
the  hope  of  complete  success.  Effective  collective 
bargaining  depends  even  more  on  discipline  and 
cohesion  than  on  numbers.  The  unions  are,  there- 
fore, faced  with  a  twofold  difficulty,  and,  conse- 
quently, a  twofold  task.  They .  cannot  hope  to 
obtain  recognition  from  employers  as  the  represen- 
tatives of  the  employees,  while  they  fail  to  retain 
their  hold  on  their  own  members.  The  very  possi- 
bility that  an  agreement  with  the  union  may  be 
repudiated  by  the  vorkers  outside  the  councils  of 
the  union  is  sufficient  to  prevent  any  important 
agreements  from  ever  being  made.  Until  the  unions 
secure  the  adhesion  of  their  own  lukewarm  sympa- 
thizers and  the  implicit  acceptance  of  the  collective 
decisions  by  every  member,  whether  consulted  or 
not,  they  will  gain  only  a  grudging,  or,  at  most, 
a  sentimental  recognition  from  a  few  employers. 
Their  main  task,  as  it  is  the  chief  obstacle  in  the  way 
of  success,  is  to  make  their  internal  discipline  more 
perfect  and  to  strengthen  their  hold  on  their  own 


Discipline  the  Problem  for  Trades-Unions.     273 


ore 
iwn 


members.  The  difficulty  is  greater  in  peace  than 
in  war.  While  a  strike  is  impending  and  during  its 
continuance  a  union  has  little  difficulty  in  control- 
ling its  own  members.  During  peace  it  is  harder  to 
convince  unenlightened  members  that  the  benefits 
of  concerted  action  and  collective  bargaining  out- 
weigh the  sacrifices  which  must  be  made  to  obtain 
these  benefits.  Caprice  and  lukewarmness  alike  tend 
to  reduce  the  membership  when  nothing  calls  forth 
the  spirit  of  class  antagonism.  Consequently,  it  is 
not  merely  as  a  remedy  against  the  masters,  but  also 
as  a  remedy  against  the  indifference  of  their  own 
members  and  the  lack  of  habits  of  discipline,  that 
newly  formed  unions  find  themselves  compelled  to 
carry  on  a  militant  policy  and  engage  in  strikes.  In 
older  unions,  among  whose  members  the  habit  of 
obedience  has  been  formed,  there  is  not  the  same 
necessity  for  a  perpetually  militant  policy.  Their 
proved  strength  has  not  only  won  them  the  respect 
of  the  employers  but  has  also  secured  co'  esion  in 
their  own  ranks. 

The  difficulty  of  securing  this  cohesion  arises 
from  the  fact  that  the  only  power  which  a  union 
can  exercise  over  its  members  is  a  moral  power. 
It  depends  on  their  willingness  to  make  pres- 
ent sacrifices  for  future  benefits.  Even  where 
habit  has  reinforced  the  original  moral  motive  the 
control  of  the  members  during  times  of  peace  is  a 
serioi's  question.  Many  of  their  rules  and  regula- 
tions are  more  honored  in  the  breach  than  in  the 

observance;  and  most  unions  have  been  compelled 
18 


i; 


*!    It- 


M 


;  :il 


(    i 


f: 


I 


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2/4 


77/i'  Bargain  Theory  of  Wages. 


t':\- 


to  reinforce  their  authority  by  more  mechanical 
methods  than  an  appeal  to  principle  or  future  self- 
interest.  With  the  exception  of  the  militant  new 
unions,  nearly  every  association  exercises  the  func- 
tion of  a  benefit  society,  and  by  means  of  deferred 
payment  endeavors  to  retain  control  of  its  members. 
The  means  which  they  object  to  the  employer  us- 
ing in  order  to  attach  the  men  to  his  service  they 
themselves  employ  in  order  to  maintain  the  solid- 
arity of  labor.  These  benefit  funds  were  originally 
established  purely  as  benefit  funds,  but  now  they 
are  made  to  serve  a  double  purpose.  It  may  seem 
strange  that  members  of  a  voluntary  association 
founded  to  secure  the  interests  of  its  own  members 
should  be  so  difficult  to  manage ;  and  some  have  not 
hesitated  to  write  strongly  of  trade-union  tyranny. 
It  is  asserted  that  coercion  of  some  sort  must  be 
used  to  induce  those  members  to  join  who  are  so 
hard  to  retain  and  so  difficult  to  manage.  Surely, 
however,  the  divergence  between  collective  and  in- 
dividual interests  is  no  uncommon  political  phenom- 
enon. Every  day  collective  decisions  are  being  made 
by  men  who  know  that  personally  they  will  not  abide 
by  these  decisions.  Everyone  who  has  liv<.'d  in  a 
prohibition  town  knows  men,  saloon  keepers  even, 
who,  having  voted  for  "  no  license,"  not  only  wink 
at  the  violation  of  the  law  but  often  violate  it  them- 
selves. It  is  a  weakness  by  no  means  confined 
to  the  working  classes  that  their  immediate  inter- 
ests weigh  heavier  with  them  than  their  collec- 
tive decisions.     How  easy  a  matter  is  it  to  induce 


The  Obstacles  in  the  tvay  of  Die  inline.        275 


-n, 
ink 
km- 
led 
[er- 
lec- 
jce 


the  shopkeepers  in  one  district  to  stick  by  an  early- 
closing  agreement  ?  Has  not  the  ring  or  the  cor- 
ner developed  under  pressure  of  the  same  difficulty 
into  the  combine  and  the  trust  ?  Many  an  ardent 
advocate  of  high  protection  has,  without  much  hesi- 
tation, done  a  little  smuggling  on  his  own  account; 
with  less  justification,  too,  for  his  inconsistency, 
than  the  trade-unionist  has  for  his,  who,  after  voting 
for  a  general  strike  goes  back  to  work  while  his  fel- 
lows remain  out,  or,  after  a  long  experience  of  being 
out  of  work,  undersells  his  fellow-workers,  although 
he  has  previously  acquiesced,  at  least,  in  the  prin- 
ciple of  the  trade-union  minimum  wage.  It  is  not 
trade-union  tyranny  which  lays  down  these  regula- 
tions but  human  nature  which  necessitates  them. 
For  the  laborer  must  live  by  his  own  labor;  and 
when  there  are  added  the  necessities  of  his  wife  and 
children,  it  is  small  wonder  that  he  is  sometimes  false 
to  his  unionist  principles.  Without  injustice  to  the 
sex,  when  we  remember  how  much  more  to  a  woman 
is  the  economy  of  her  own  household  than  the  collec- 
tive interests  of  labor  can  ever  be,  we  may  say  that 
the  women  are  a  most  potent  cause  why  trade-union 
policy  is  not  more  successful.  When,  in  a  long  spell 
of  forced  idleness  on  the  part  of  the  breadwinner, 
article  after  article  of  furniture  disappears  from  the 
home,  to  buy  the  children  bread,  it  is  natural  that 
the  wife  should  urge  her  husband  to  sacrifice  what 
is  to  her  only  a  half  intelligible  principle.  Women 
live  more  in  the  concrete  than  men,  and  have  less 
power  of  realizing  an  abstract  principle.      Conse- 


I  \ 


i',' 


n 


Mr 

1  ' 
.1  , 


J'J; 

lit'' 


hii 


% 


276 


yV/f  Bargain  Theory  of  Wages. 


qucntly,  the  influence  of  the  women  must  be 
counted  as,  on  the  whole,  one  of  the  influences 
hostile  to  the  success  of  trade-unionism.  Their  in- 
fluence reinforces  the  individual  interests  which  it  is 
the  policy  of  the  union  to  subordinate.  However 
much  sympathy  leaders  of  the  union  may  have  with 
the  individual's  position  they  must  set  their  faces 
against  any  pursuit  of  self-interest  which  might 
weaken  his  allegiance  to  union  principles.  It  is 
because  trade-unionists  believe  that  the  interests  of 
the  individual  worker  are  best  guarded  and  main- 
tained by  concerted  action  that  the  policy  of  collec- 
tive bargaining  has  been  adopted;  and  collective 
bargaining  is  not  tyranny  but  democratic  principle. 

The  difficulty  of  maintaining  cohesion  and  disci- 
pline is  the  great  natural  limitation  on  the  action  of 
trades-unions  in  raising  wages.  It  is  a  permanent 
limitation  because  it  arises  from  the  inher2nt  im- 
perfections of  human  nature  and  will  remain  until 
man  is  perfectly  socialized  in  his  motives  as  well  as 
in  his  outward  actions.  It  arises  not  so  much  from 
the  small  proportion  of  workers  included  within  the 
unions  as  from  the  conflict  of  individual  and  collec- 
tive interests;  a  conflict  which,  in  the  nature  of 
things,  is  probably  inevitable.  The  diflficulty  may, 
it  is  true,  by  means  of  out-of-work  funds  and  strike 
benefits,  be  met  and  partially  overcome ;  but,  while 
the  necessity  for  trade-unions  continues,  this  diffi- 
culty v/ill  confront  them  in  carrying  out  their  policy. 

The  proportion  of  the  actual  workers  included 
within  the  union  becomes  of  more  pressing  import- 


1 


The  Cardinal  Maxim  of  Trade-  Union  Policy.     277 


ancc  when  the  wisdom  of  any  particular  application 
of  the  principle  is  under  consideratioi  The  utmost 
that  the  fullest  application  of  the  principle  could 
achieve  for  the  laborer  is  that  the  actual  value  of 
labor  should  be  determined  as  nearly  as  possible  to 
I2X,  the  upper  limit.  Trade-union  action  would  be 
suicidal  if  it  demanded  more  of  the  product  in  wages 
than  the  industry  can  economically  afford.  It  may 
try  to  secure  that  the  whole  of  the  debatable  ground 
is  secured  for  labor;  but  it  is  practical  wisdom  to 
recognize  that  the  whole  of  this  ground  can  never 
be  secured  at  a  stroke.  Fcstina  Icnte  must  be  the 
motto  of  the  union  leader  unless  success  is  to  be  im- 
mediately reversed ;  and  advance  can  be  made  only 
by  stages. 

The  weakness  of  the  position  of  the  employer  as 
a  bargainer  in  the  labor  market  is  that  delay  means 
loss  of  profits.  He  can,  it  is  true,  support  himself 
out  of  the  stock  which  he  has  already  acquired ;  but 
he  is  never  willing  to  do  so  if  he  can  avoid  it.  The 
greater  the  amount  of  capital  involved  in  his  busi- 
ness, the  greater  the  loss  arising  from  delay  in  pro- 
cess of  production.  The  employer  may  therefore 
be  willing  to  grant  a  demand  which  is  only  trifling 
in  itself  to  avoid  a  greater  loss  by  delay.  If  the  de- 
mand is  put  forward  in  such  a  way  that  it  alarms  him 
with  the  prospect  of  further  demands  to  be  made, 
he  may  decide  to  resist  before  the  opposing  forces 
are  flushed  with  success.  So  it  is  the  cardinal 
maxim  of  wise  trade-union  policy  never  to  make 
extravagant  demands,  or  to  ask  more  than  the  em- 


T 


1 

s«;:s    i  ■ 

I 

.J--     \ 

278 


The  Bargain  Theory  of  Wages. 


ploycr  will  grant  rather  than  face  the  loss  from  re- 
fusing. If  he  does  refuse,  there  is  certain  loss  to 
him — not,  perhaps,  the  great  loss  of  having  all  his 
capital  made  idle,  but  certainly  the  loss  which  arises 
from  the  necessity  of  making  a  change  in  his  staff  of 
workers  and  in  getting  them  trained  to  his  methods. 
Never  to  press  for  a  larger  gain  than  is  covered  by 
the  difficulty  of  replacing  the  body  of  present  em- 
ployees by  outside  labor,"  *  is  the  maxim  of  a  wise 
policy.  It  is  a  wise  policy  not  only  because  it  is 
likely  to  be  successful,  but  also  because  it  does  not 
expose  the  laborer  to  any  unnecessary  risks.  The 
laborer  must  live  by  his  labor;  and  if  by  grasping  at 
a  greater  gain  he  sacrifices  the  employment  he  has, 
his  condition  is  both  hard  and  ridiculous.  What 
demand  the  cost  of  replacing  the  present  staff  by 
outside  labor  may  admit,  depends  on  the  supply  of 
labor,  the  strength  of  the  union,  and  the  nature  of 
the  work.  If  a  large  proportion  of  the  workers 
is  included  within  the  union  they  may  press  for  a 
larger  gain  because  the  difficulty  of  replacing  the 
body  of  the  present  workers  may  be  so  great  that 
the  employer  must  either  submit  to  the  demand  or, 
refusing,  submit  to  have  his  works  closed  down.  In 
the  skilled  trades,  where  a  considerable  proportion 
of  the  workers  is  included  within  the  union,  a  de- 
mand, within  the  proper  limits,  will  generally  be 
granted  unless  it  happens,  as  it  may  very  probably, 
that  the  strength  of  the  workers  has  already  secured 
for  them  all  the  difference  between  the  two  esti- 

*  Hobson,  Problems  of  Poverty,  p.  116. 


The  Effect  of  Trade-Unions  on  Wages.       279 


mates.  In  the  case  of  unskilled  workers,  demands 
must  be  very  much  more  moderate,  because  the  cost 
of  replacing  is  so  much  less. 

The  advocates  of  trade-unions  claim  that  the 
greater  part  of  the  rise  of  wages  during  the  last  half 
century  has  been  due  to  their  influence.  Certainly 
the  rise  of  wages  and  the  growth  and  progress  of 
trade-unionism  have  proceeded /d-rZ/^j'jJw.  The  ex- 
amination we  have  made  of  the  influence  of  collective 
bargaining  shows  thnt  the  claim  must  be  modified. 
Had  the  standard  of  efficiency  not  risen  steadily, 
there  would  have  been  no  steady  rise  of  wages,  un- 
less, indeed,  we  are  to  suppose  that  the  difference 
between  the  two  limits,  at  the  beginning  of  the 
period,  was  enormous:  which  we  have  no  ground 
for  supposing.  Indirectly,  as  we  saw,  trade-union- 
ism has  promoted  efficiency  and,  indirectly,  has 
thus  raised  the  upper  limit  of  wages.  Directly, 
however,  the  method  of  collective  bargaining  can 
secure  only  that  the  value  of  labor  is  determined 
nearer  the  upper  limit  than  the  lower;  and,  had 
there  been  no  rise  in  the  standard  of  efficiency, 
there  would,  very  quickly,  have  been  a  limit  to  the 
rise  of  wages. 

When  we  regard  the  policy  of  trade-unionism  re- 
garding wages  as  being  directed  towards  the  collec- 
tive interests  of  the  workers  the  balance  sheet  of  a 
strike  becomes  of  secondary  importance.  To  the 
individual  striker,  the  result  may  be  a  great  loss :  to 
the  whole  body  of  workers  it  may  be  a  great  gain. 
We  can  no  more  estimate  the  wisdom  of  a  strike 


1 

i 


28o 


The  Bargain  Theory  of  Wages. 


11, 


from  the  point  of  view  of  the  actural  loss  or  gain  to 
the  strikers,  than  we  can  estimate  the  results  of  a 
battle  or  a  campaign  by  the  number  of  lives  lost.* 
Even  a  virtual  defeat  when  the  strikers,  or  so  many 
of  them  as  can  find  room,  go  back  to  work,  with 
their  demands  ungranted,  may  result  in  a  great  gain 
to  the  body  of  workers  as  a  whole — to  the  body  of 
workers  in  that  trade  directly  and  in  a  greater  meas- 
ure, but  also,  though  indirectly,  to  the  workers  in 
all  trades;  and  an  advance  which  was  refused,  when 
thus  violently  demanded,  may  be  conceded  by  de- 
grees when  more  cautiously  requested — and  not  to 
the  strikers  only  —  because  the  employers  have 
learned  to  respect  the  fighting  power  of  their 
employees. 

*  Marshall :  Economics  of  Industry^  p.  391  ;  see  also  Nicholson's 
Strikes  and  Social  Problems. 


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If, I 


1  ■  I 


iJvt 


CHAPTER  VIII. 


THE  METHODS  OF  INDUSTRIAL  REMUNERATION 
AS  A   WAGES  FACTOR. 

MR.  SCHLOSS,  in  his  Methods  of  Industrial 
Remuneration,  has  confined  his  investigation 
to  the  method  as  distinguished  from  the  amount  of 
the  remuneration ;  but  the  method  is  not  without 
bearing  on  the  more  essential  question  of  the  amount. 
The  system  adopted  may  be  of  such  a  nature  as 
materially  to  affect  the  position  of  the  wage  earner 
in  the  wages  bargaining:  his  freedom  may  be  cur- 
tailed, his  general  character  weakened,  his  efficiency 
reduced,  by  one  method  of  remuneration;  while  by 
another  his  mobility  and  his  independence  may  be 
increased,  the  stronger  elements  in  his  character 
allowed  to  develop,  and  the  utility  of  the  reward, 
for  which  he  is  induced  to  serve,  augmented. 

The  form  of  the  wages  contract  which  is  made  at 
the  conclusion  of  the  bargaining  has,  therefore, 
sufficient  importance  to  justify  separate  treatment ; 
even  although  the  methods  of  remuneration  are  not 
to  be  regarded  as  an  independent  factor  in  the  pro- 

28 1 


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282 


The  Bargain  Theory  of  ]Vogi's. 


cess  but  simply  as  a  general  condition  affecting  the 
factors  which  have  already  at  greater  or  less  length 
been  discussed.  This  chapter  is,  therefore,  an  ex- 
amination of  the  way  in  which  the  manner  of 
payment  affects  the  mobility  of  the  laborer,  the 
possibility  of  combination,  the  efficiency,  the  dis- 
utility, etc.,  of  labor;  and  may  be  regarded  as  a 
supplement  of  or  appendix  to  the  previous  chapters. 

The  time  and  the  manner  and  the  kind  of  re- 
muneration which  the  laborer  receives  determine  in 
part  the  laborer's  estimate  of  what  the  labor  he  ren- 
ders is  worth  and  the  employer's  estimate  of  what 
the  laborer's  work  is  worth  in  the  market;  and 
affect  strongly  the  comparative  strength  of  the  bar- 
gainers in  the  process  of  bargaining. 

The  laborer's  estimate  of  what  his  labor  is  worth 
— the  lower  limit  of  wages — is  partly  conditioned  by 
the  methods  of  remuneration  which  may  either  in- 
crease or  diminish  the  disutility  of  labor,  or  increase 
or  diminish  the  utility  of  the  reward.  The  former 
is  not  directly  or  greatly  affected.  Indirectly,  by 
weakening  the  laborer's  power  of  resistance,  certain 
forms  of  payment,  notably  truck  payments,  lead  to 
evil  conditions  which  materially  increase  the  dis- 
utilities; and  generally  speaking  those  forms  of 
wages-contract  which  leave  some  element  indefinite, 
intensify  both  the  positive  and  negative  disutilities. 

Profit  sharing,  as  we  have  seen,  has  the  effect 
of  increasing  the  labor  expended  without  propor- 
tionally increasing  the  reward ;  and  piece  work,  by 
forcing  the  pace  and  paying  all  according  to  the 


'Vi\':'-- 


m 


Effect  on  the  Disutility  of  Labor. 


283 


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by 


standard  of  the  most  efficient,  has  the  same  effect.* 
The  objections  which  the  trades-unions  raise  against 
the  system  of  piece  work  are  not  based  on  any  en- 
vious grudge  of  a  higher  reward  for  higher  efficiency, 
but  on  the  fear  that  the  superior  abiHty  of  a  few  may 
be  set  as  the  standard  for  all.  Time  wages  have 
nearly  always  a  quantitative  reference  and  in  the 
ethical  phrase  are  sanctioned  by  the  dismissal  of  all 
who  fail  to  reach  the  standard.  This  standard  tends 
to  be  the  efficiency  of  the  best  workers  on  piece 
work ;  and  the  consequence  of  enforcing  this  standard 
would  be  that  for  a  given  reward  a  greater  expendi- 
ture of  energy  is  required. 

The  moral  disutilities  of  labor  are  generally  in- 
creased by  those  forms  of  wage  payment  where  the 
laborer  is  not  left  in  free  and  complete  command  of 
his  reward.  These  intensify  the  irksomeness  of  labof 
and  the  sense  of  dependence;  and,  consequently, 
mean  a  larger  output  of  energy  and  a  greater  gen- 
eral disutility. 

The  influence  of  the  methods  of  remuneration  on 
the  other  element  which  goes  to  make  the  laborer's 
estimate — the  utility  of  the  reward — is  more  direct. 
Wages  are  earned  in  order  to  be  consumed  and  the 
method  of  payment  obviously  affects  the  command 
the  laborer  has  over  consumption  goods.     The  maxi- 

*  Piece  work  has  undoubtedly  the  effect  of  increasing  the  output  of 
the  worker  but  it  has  hdd  no  influence  in  raising  the  average  wage  of 
the  piece  workers  above  that  of  the  time  workers.  The  average 
annual  time  wages  in  the  United  States  is  $498 — the  average  annual 
piece  wage  is  $500.  Wright,  Industrial  Evolution  of  United  States, 
p.  197. 


1 


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284 


T/w  Bargain  Theory  of  Wages. 


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mum  utility  is  obtained  by  the  laborer  when  his 
wages  arc  paid,  at  short  intervals,  and  in  the  legal 
tender  of  the  country.  Whether  he  obtains  an  ethi- 
cal maximum  depends  entirely  upon  himself  and  his 
discretion  in  consumption.  He  certainly  obtains 
the  fullest  possible  opportunity.  The  minimum  of 
utility  is  in  general  obtained  when  the  wages  are 
paid  in  goods,  or  in  orders  at  the  store  only,  or  at 
long  and  irregular  intervals.  There  are  two  cases  to 
discuss  (i)  when  war^fes  are  paid  in  cash  but  at  long 
intervals  or  irregularly;  and  (2)  when  they  are  paid 
in  kind  or  in  goods,  whether  by  the  week,  the  month, 
or  the  season. 

In  the  industrial  centres  wages  are  row  generally 
paid  by  the  week;  but  in  many  districts  where 
money  is  scarce,  or  labor  unorganized,  and  in  cer- 
tain employments  where  the  natural  conditions  do 
not  favor  weekly  payments — e.  g.,  railroads — wages 
are  still  paid  by  the  fortnight  or  the  month.  There 
can  hardly  be  any  question  that  weekly  payments 
are  a  benefit  to  the  laborer.  On  this  score  his  own 
demand  may  be  taken  as  final ;  and  there  is  practical 
unanimity  among  the  working  classes  in  regarding 
weekly  payments  as  an  advantage.  They  arc  en- 
abled thus  to  avoid  the  increased  prices  which  are 
charged  when  credit  is  given ;  and  although,  in  a  few 
instances,  it  may  be  that  the  laborer,  paying  cash, 
is  unable  to  obtain  a  discount  from  credit  prices,  and 
may  thus  be  made  to  make  up  to  the  storekeeper  for 
the  bad  debts  of  his  credit  customers,  such  instances 
are  rare  and  occur  chiefly  in  smaller  towns  and  vil- 


Effect  on  the  Utility  of  the  Reward.         285 


lages.  Evidence  was  taken  by  the  Canadian  Labor 
Commission  on  this  subject  and  the  opinion  of 
working-class  witnesses  was  that  with  weekly  cash 
payments  they  could  spend  their  money  twenty  to 
twenty-five  per  cent,  better  than  if,  in  consequence 
of  monthly  payments,  they  were  compelled  to  buy 
on  credit.  On  the  other  hand,  the  employers  who 
still  maintained  the  practice  of  monthly  payments 
averred  that  weekly  payments  led  to  extravagance 
and  dissipation  while  monthly  payments  encouraged 
saving  and  enabled  the  worker  more  easily  to  meet 
any  large  liability — e.  g.y  house  rent — he  might  be 
required  to  pay.  To  the  best  workmen  weekly  pay- 
ments miglit  be  no  great  advantage,  and  to  the  dis- 
sipated they  would  prove  a  great  evil;  but  to  the 
average  workmen  they  would  be  highly  advan- 
tageous.* 

*  On  tar  to  EviJ.,  p.  875,  Can.  Labor  Com.  "The  employees 
would  rather  have  their  pay  weekly,  hcca.'se  it  would  make  them 
financially  more  independent.  We  find  that  in  a  great  many  in- 
stances (witness  was  District  Master  of  the  Knights  of  Labor)  work- 
men have  to  run  monthly  accounts,  and  that  puts  them  entirely  at 
the  mercy  of  the  corner  grocers.  You  feel  under  obligation  to  the 
man  ;  you  have  to  take  what  he  has  got  and  you  cannot  go  anywhere 
else  ;  you  are  obliged  to  stay  there." 

Nova  Scotia  Evidence,  p.  364.  "  The  men  could  live  for  from  five 
to  eight  dollars  a  month  less  for  cash,  if  they  had  it,  than  they  can 
upon  credit.  .  .  .  When  you  have  cash  the  merchant  will  take 
what  you  give  him,  whereas,  if  you  get  goods  on  crec'if  they  go  into 
his  books  at  his  own  figures." 

Ibid.,  p.  441.  "It  would  give  the  men  a  much  better  chance  to 
deal  for  cash,  and  would  give  them  a  chance  to  buy  many  things 
cheaper  than  they  can  do  by  the  present  system  of  monthly  payments. 
If  a  man  comes  in  with  country  produce  and  you  are  paid  weekly  or 


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286 


7/ic  Bargain  Theory  of  Wages. 


Not  infrequently  the  payment  of  wages  is  not 
made  for  some  weeks  after  the  time  sheet  has  been 
made  up  and  the  workmen  get  advances  at  high 
rates  from  outsiders  on  this  security.  Sometimes 
the  employer  pays  wages  in  due-bills  payable  at 
some  future  date;  and  the  wage  earner  may  either 
wait  or  get  them  discounted.  The  rates  of  discount 
on  such  due-bills  are  generally  high  not  only  because 
the  security  may  noJ:  be  good,  but  also  because  the 
necessities  of  the  worker  are  immediate.  One  wit- 
ness testified  before  the  Canadian  Labor  Commis- 
sion *  that  he  had  been  paid  with  bons  or  due-bills 

fortnightly  you  have  cash.  If  you  have  not,  he  goes  to  the  store  and 
sells  what  he  has,  and  you  have  to  buy  the  same  article  on  credit  and 
pay  more  for  it." 

Ibid.,  p.  405.  "  In  reference  to  the  subject  of  weekly  payments 
.  .  .  the  only  difference  is  that  the  men  go  drunk  once  a  week 
instead  of  unci   \  fortnight." 

*  Quebec  Evu  ice,  p.  783. — We  were  obliged  to  take  '  bons,'  notes 
to  be  paid  ;  witht.  t  these  we  might  have  waited  a  long  while  and 
perhaps  lost  our  money. 

It  was  an  order,  a  note  to  be  changed,  a  promissory  note  :  "  I  pro- 
mise to  pay  in  thirty  days  the  sum  of  ." 

Q.  What  did  you  do  with  that  note  ?    A.  I  got  it  changed. 

Q.  Did  it  cost  you  anything  ?  A.  One  dollar  and  the  note  was  for 
twenty. 

Q.  Did  you  change  it  in  a  bank  or  with  somebody  in  connection 
with  your  master?     A.  With  a  broker. 

Q.  Did  your  master  send  you  there  or  did  you  go  of  your  own  ac- 
cord ?     A.   My  master  told  me  to  go  there. 

Q.  Then  the  master  gave  you  a  note  of  twenty  dollais  to  pay  your 
wages,  and  sent  you  to  the  broker  he  pointed  out  who  paid  you  the 
note  and  retained  the  dollar?     A.  Yes. 

The  only  industry  in  which  this  practice  still  survives  to  any  extent 
is  lumbering  where  a  considerable  interval  of  time  must  elapse  between 


mmmmmmm 


Deferred  Payment. 


287 


!  I 


which  were  discounted  at  sixty  per  cent.  Several 
Ontario  witnesses  stated  that  they  had  been  paid  in 
due  bills  which  were  discounted  by  local  shop- 
keepers at  fifteen,  twenty-five,  and  even  fifty  per 
cent. ;  although  some  merchants  in  Ottawa  were 
said  to  receive  them  at  face  value.* 

The  manner  of  payment  here  not  only  restricts 
the  command  which  the  laborer  would  otherwise 
have  over  the  necessaries  of  life  but  actually  re- 
duces the  nominal  wages  paid. 

Payment  of  wages  in  kind  may  be  either  produce 
wages  or  truck  wages.  For  the  former  there  is 
much  to  be  said  as  a  method  of  securing  the  real 
advantages  of  profit  sharing.  Mr.  Garnier  advocates 
it  as  a  method  of  improving  the  condition  of  the 
agricultural  laborer.  The  great  objection  to  pay- 
ments in  kind  is  that  the  reward  is  not  definite 
and,  therefore,  leaves  the  laborer  continuously  at 
the  discretion  of  his  employer.  The  goods  received 
in  payment  may  vary  in  quantity,  quality,  and 
value;  but  in  the  case  of  produce  payments,  though 

the  performance  of  the  work  and  the  marketing  of  the  product. 
Should  the  "cut  "  of  a  small  operator,  or  subcontractor,  be  held  up  in 
the  smaller  streams  and  tributaries  he  is  generally  paid  by  means  of  a 
due-bill  payable  next  season  when  the  lumber  arrives  at  the  market  or 
when  his  cut  gets  out  into  the  main  stream  ;  and  presumably  he  often 
pays  his  hands  for  their  winter's  work  in  the  same  fashion.  Quebec 
Evidence,  p.  11 90.   - 

*  Ontario  Evidence,  p.  11 88.  These  due-bills  are  not  scrip  regu- 
larly issued  but  notes  of  hand  which  it  is  said  are  not  always  redeemed 
when  they  fall  due.  Ontario  Bureau  of  Statistics  Report,  i888,  iv., 
p.  8.  This  practice  has  with  the  truck  system  practically  disap- 
peared. 


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288 


T/ie  Bargain  Theory  of  Wages. 


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the  value  is  not  definite,  the  quantity  always  is,  and 
the  quality  is  ascertainable.  The  variations  in  value, 
moreover,  are  determined,  not  by  the  will  of  the 
employer,  but  by  the  forces  of  the  market.  "  I 
would  at  any  rate  suggest,"  he  says,  "  that  there 
should  be  less  cash  and  more  flour  in  the  wages  of 
each  Saturday  night  "  ;  and  he  quotes  with  approval 
from  the  Journal  R.  A.  S.  E.,  the  following 
passage : 

"  One  very  obvious  benefit  arising  to  the  hind  from 
this  mode  of  paying  in  kind,  besides  that  of  having  a 
store  of  wholesome  food  always  at  command,  which  has 
not  been  taxed  with  the  profits  of  intermediate  agents,  is 
the  absence  of  all  temptation  which  the  receipt  of  weekly 
wages,  and  the  necessity  of  resorting  to  a  town  or  village 
to  buy  provisions,  held  out  of  spending  in  the  ale-house 
some  part  of  the  money  which  ought  to  provide  for  the 
wants  of  the  family."     .     .     .* 

In  so  far  as  produce  wages  are  definite,  the  system 
is  advantageous  to  all  concerned,  but  especially  so 
to  the  wage  earner,  owing  to  the  great  saving  on  the 
profits  of  middlemen ;  f  but  it  is  doubtful  whether 

*  Garnier : — Annals  of  the  British  Peasantry^  p.  411.  As  he 
points  out  (p.  410)  the  good  in  payments  in  kind  was  abolished  by  the 
English  Act  of  1887  while  the  bad  was  practically  retained.  Intoxi- 
cating liquors  may  not  legally  be  given  in  payment  of  wages  ;  but  the 
employer  may  still  do  so  by  calling  it  a  gift. 

f  The  system  of  metayer  farming  which  is  practiced  largely  in  some 
of  the  older  of  the  United  States  may  be  regarded  either  as  a  system 
of  produce  rents  or  of  produce  wages.  The  disinclination  of  the  de- 
scendants of  the  original  settlers  to  engage  in  farm  work  and  their 
natural  exodus  to  the  cities  and  the  professions  have  rendered  them 


Produce  Wages. 


289 


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these  advantages  offset  the  disadvantages  which 
arise  in  a  period  when  wages  are  falHng.  Wages 
which  are  paid,  in  whole  or  in  part,  in  goods,  are 
subject  to  unrecognized  fluctuations  with  the  level 
of  prices.  Thus  the  wages  of  lumbermen  in  Can- 
ada, and  domestic  servants  everywhere,  have  either 
fallen,  or  not  risen  so  far  as  at  first  appears,  because 
board  is  included  in  their  pay  and  the  prices  of  most 
of  the  articles  they  consume  have  fallen,  although 
the  increased  variety  and  the  improvement  in  the 
quality  of  the  board  provided  may  restorcthebalance. 
The  truck  system  is  the  outstanding  form  of  the 
payment  of  wages  in  kind  and  is  still  prevalent  in 
many  districts.  It  has  disappeared,  indeed,  at  all 
the  industrial  centres  and  the  practice  is  confined  *^ 
backward  districts,  where  banking  facilities  are  pooi , 

unwilling  or  unable  to  continue  cultivating  the  old  homestead.  Labor 
is  too  dear  to  allow  the  farm  to  be  cultivated  entirely  by  hired  labor  ; 
and  it  is  difficult  to  dispose  of  the  farm,  apart  from  sentimental  rea- 
sons, on  advantageous  terms,  sometimes  on  any  terms.  At  the  same 
time  there  has  been  an  immigration  of  European  farmers  without 
capital.  The  system  of  farming  by  '  halves  '  or  '  thirds  '  which  has 
been  developed  is  as  natural  an  outcome  of  these  circumstances  as  the 
stock  and  farm  leases  of  the  15th  Century  were  of  the  conditions  pro- 
duced by  the  IJlack  death.  The  owner  supplies  the  farm,  the  stock, 
and  sometimes  even  the  implements,  and  the  farmer  pays  1  j  half,  or 
two  thirds,  of  the  produce  to  the  owner,  according  to  the  amount  of 
capital  supplied.  In  the  Maritime  Provinces  of  Canada  where  the 
same  agricultural  and  social  conditions  prevail  the  wrA/jvr  system  has 
not  been  developed  owing  to  the  absence  of  a  foreign  element  in  the 
population  accustomed  to  intensive  farming.  In  New  Brunswick, 
however,  the  hay  harvest  is  often  cut  and  private  gardens  are  occa- 
sionally cultivated  on  this  system.  In  this  case  we  have  a  system  of 
produce  wages  rather  than  of  produce  rents. 
»9 


290 


The  Bargain  TJicory  of  Wages. 


iSl^ 


1 ' 


% 


% 


ti: 


and  labor  unorganized  and  ignorant,  and  to  those 
industries  which,  depending  on  the  season,  involve 
irregular  employment  and  proportionally  large  capi- 
tal. The  effect  of  this  method  of  industrial  remuner- 
ation was  characterized  in  the  report  of  the  Canadian 
Labor  Commission  as  always  amounting  to  a  sweated 
wage ;  and  in  its  worst  form,  as  it  has  existed  in  many 
places,  it  has  resulted,  as  was  epigrammatically  said 
of  it  in  Nrwfoundland,  in  the  laborer  being  not  paid 
in  "  part  goods,  part  cash,"  but  in  "  part  goods, 
part  trash."  Frequently  the  laborer,  where  this 
system  is  in  force,  has  received  no  part  of  his  wages 
in  cash.  By  means  of  deferred  payments  and  irreg- 
ular employment,  the  worker  gets  involved  in  debt  at 
the  company  store,  and  then  he  has  practically  ceased 
to  be  his  own  master.  Those  who  are  once  in  the 
toils  of  the  system  are  seldom  able  to  work  their  way 
out  again ;  and  the  more  deeply  they  are  involved, 
the  more  subject  are  they  to  petty  tyrannies  at  the 
hands  of  the  subordinate  oflficials  of  their  employers. 
The  salesmen  in  these  stores  frequently  carry  side 
lines  of  goods  which  they  practically  force  *  upon  un- 
willing but  helpless  customers,  because  they  control 

*  ' '  But  there  is  another  evil  which  we  learn  in  connection  with 
this  system.  At  some  company  stores  in  this  county  the  managers, 
or  clerks,  carry  side  lines  of  goods,  usually  jewelry,  which  they  sell 
to  men  who  have  employment  around  the  works  ;  and  in  one  instance, 
it  has  been  told  us  that  a  workman  who  had  purchased  a  $1 5  filled- 
case  watch  for  the  moderate  sum  of  $35  .  .  .  went  and  asked 
for  an  order  to  get  $5  in  cash  at  the  office  of  the  mine.  'Yes,'  was 
the  reply,  '  if  you  give  me  $4  on  that  watch  you  bought  from  me  last 
month.'" — The  Island  Reporter  {(Z^^Q  Breton),  Nov.  ii,  1896. 


I    •• 


^^  Part  Goods,  Part  Trash.'* 


291 


the  avenues  of  employment.  The  object  of  those 
who  practise  the  system  in  its  most  objectionable 
form  is  to  control  the  expenditure  of  their  laborers 
for  the  sake  of  the  profits,  legitimate  or  not,  of  the 
retail  business;  and  the  laborer  is  seldom  allowed  to 
carry  away  any  part  of  his  earnings  in  cash.  In 
many  cases,  the  only  way  in  which  ready  money 
can  be  obtained  is  by  reselling  the  goods  obtained 
at  the  stores;  and  there  is  a  profitable  business, 
mainly  in  the  hands  of  the  saloon-keepers,  of  buying 
from  the  laborers  the  articles  they  ha  ..  obtained  at 
the  stores.  *  This  is  not  infrequently  the  only 
method  in  which  the  goods  required  can  be  ob- 
tained, for  when  the  goods  asked  for  are  not  in 
stock,  the  intending  buyer  has  to  do  without,  having 
neither  the  cash  nor  the  courage  to  seek  elsewhere. f 
The  problem  how  far  the  payment  of  wages  in 
goods  obtained  at  these  stores  curtails  the  utility  of 


led- 
>ked 
was 
last 


*  A  valued  correspondent,  Mr.  C.  Ochiltree  McDonald,  of  Port 
Morien,  Cape  Breton,  who  has  given  me  much  information  regard- 
ing the  working  of  the  truck  system  in  Cape  Breton,  informs  me  that 
there  were  lately  auctioned  off  by  a  drink-seller  at  Glace  Bay,  C.  B., 
1038  tobacco  pipes,  which  had  been  taken  from  the  miners  in  exchange 
for  drinks — the  auction  being  the  method  of  realizing  cash  on  the 
transaction.  Frequently,  in  the  same  district,  there  are  auctions — 
sometimes  several  in  the  course  of  a  week — of  goods  such  as  clothing 
and  groceries,  which  have  been  obtained  at  the  stores  and  exchanged 
for  drink.  The  profits  of  "this  business  are  so  large  that  many  saloon- 
keepers have  been  attracted  to  the  district. 

f  Canadian  Labor  Com.,  N'cw  Brnnsrvick  Evidence,  p.  407.  It  is 
by  no  means  always  the  case  that  the  company  stores  are  inferior  to 
outside  stores,  and  many  of  them  are  said  to  carry  as  large  a  line  of 
goods,  and  at  as  reasonable  prices.  The  Hon.  Robt.  Drummond, 
for  eighteen  years  head  of  the  miners'  organization  in  Nova  Scotia,  in- 


m 


'tii 


1 

■ 

i 

K  (l 


292 


T/ie  Bargain  Theory  of  Wages. 


the  reward  depends,  largely,  though  not  altogether, 
on  the  scale  of  prices.  There  is  a  certain  exaltation 
in  the  sense  of  freedom  and  independence  which 
comes  from  the  consciousness  of  possessing  money 
in  the  pocket  which  that  man  does  not  experience 
the  payment  of  whose  wages  is  simply  a  matter  of 
bookkeeping,  no  matter  how  reasonable  the  prices 
in  these  company  stores  may  be.  A  priori  it  might 
almost  be  argued  that  the  existence  of  a  practical 
monopoly  will  sooner  or  later  lead  to  a  higher  scale 
of  prices;  and  the  facts  seem  to  bear  out  this  con- 
tention. I  have  accumulated  a  good  deal  of  evidence 
on  this  point,  but  the  following  table  is  more  com- 
prehensive than  the  statements  of  any  of  my  corre- 
spondents, and  is,  moreover,  taken  from  the  public 

forms  me  that  the  renewed  outcry  against  the  truck  system  in  that  prov- 
ince (luring  the  last  two  years  has  come  from  the  storekeepers  rather 
than  from  the  miners.  The  coal  fields  of  Nova  Scotia  are  now  con- 
trolled by  the  Dominion  Coal  Co.  ;  and  under  new  management  the 
old  objectionable  features  of  the  system  have  disappeared,  the  com- 
pany stores  now  keeping  a  larger  variety  and  selling  superior  goods 
at  lower  prices  than  the  retail  shopkeepers  can  afford  to  do  ;  and  the 
result  has  li  en  an  agitation  on  the  part  of  the  storekeepers  against  the 
system.  Mr.  Drummond's  contention  is  in  part  borne  out  by  the  fact 
that  the  most  emphatic  denunciation  of  the  system  is  contained  in 
the  following  resolutions,  adopted  Dec.  21,  i8q6,  by  the  Sydney,  C. 
B.,  Board  of  Trade,  i.  ^.,  in  a  small  town,  retail  shopkeepers  : 

*'  Whereas  the  Truck  System  of  paying  wages  in  goods  is  alarm- 
ingly on  the  increase  in  this  country, 

"  And,  whereas  the  system  is  buying  up  the  main  avenues  of  wealth 
among  the  masses  of  the  people,  paralyzing  internal  trade  and  invest- 
ing the  wealth  produced  through  mining  in  the  mining  companies  to 
the  exclusion  of  the  general  public, 

"And,  whereas,  in  addition,  precedent  i.i  Great  Britain  and  the 
United  States  of  North  America  instructs  us  of  the  pernicious  infiu- 


Comparative  Prices. 


293 


the 
.flu- 


records  of  the  evidence  of  the  Canadian  Labor  Com- 


mission 


ARTICLK. 


PRICE  AT  company's 
STORE, 

Flour  per  barrel $6.25  . . . . 

I'ea      "   pound 0.35  .... 

Sugar  "       "      0.09 


PRICE  AT  OUT- 
SIDE STORF. 

.    $5-50 

.     0.22  to  30 

.    0.08 


Soap     "       "      0.07  and  8  0.05 

Butter"       "      0.22  to  26  0.20 

Molasses  per  gallon 0.50  0.40 

Potatoes  per  bbl 0.80  0.40  to  45 

The  witness,  on  oath,  asserted  that  the  articles  at 
the  outside  stores  were  of  the  same  brand  and  of  as 
good  quality  as  those  sold  at  the  company's  store.* 

ences  of  the  Truck  System  upon  the  social  progress  of  a  nation  ;  and 
upon  the  steady  system  of  productive  industry  of  all  kinds, 

"And,  whereas  we  must  have  national  forethought  and  refuse  to 
sanction  the  monopoly  of  wealth  produced  by  any  individual,  or  com- 
pany of  individuals,  by  the  supplanting  of  Canadian  currency  by 
goods  for  workmen, 

"  Be  it  therefore  resolved,  that  the  Board  of  Trade  draw  the  atten- 
tion of  the  Government  of  Nova  Scotia  to  the  grievous  conditions 
existing  and  threatening  to  exist  in  the  County  of  Cape  Breton,  owing 
to  the  disappearance  of  money  from  circulation  by  the  Truck  System, 
and  urge  the  Governor,  Council,  and  Assembly  of  Nova  Scotia  to 
enact  legislation  forbidding  the  payment  of  wages  in  goods." 

However,  the  protests  of  the  miners,  individually,  and  through 
their  associations,  are  too  emphatic  to  permit  us  unreservedly  to 
adopt  Mr.  Drummond's  view.  He  claims  that  the  evils  of  the  sys- 
tem, which  were  exposed  in  the  evidence  of  the  Canadian  Labor 
Commission,  are  things  of  the  past  ;  and  in  the  mainland  of  Nova 
Scotia  the  Truck  System  has  disappeared.  Mr.  Ochiltree  Macdon- 
ald,  writing  from  Cape  Breton,  insists  that  the  evidence  taken  ten 
years  since  is  perfectly  true  for  the  conditions  of  to-day  ;  that,  if  there 
has  been  any  change,  it  has  been  a  change  for  the  worse,  not  for  the 
better.  Even  regarding  Cape  I5reton,  the  truth  probably  lies  in  the 
middle  between  these  conflicting  statements. 

*  Labor  Com.  Nova  Scotia  Evidence,  p.  465,  and  sttNova  Scotia 
Evidence,  passim. 


I 
* 


'h 


i: 


11 

m 

k 

t ' 


;i*'!^ 


% 


m^'\\: 


II 


294 


T/ie  Bargain  Theory  of  Wages. 


The  principal  argument  urged  in  defense  of  the 

practice  is  that,  under  the  actual  conditions  of  winter 

industry  in  Canada,  the  stores  are  a  necessity.     The 

mines  in  Cape  Breton  cannot  be  worked  steadily  the 

year  through  because  the  ports  are  closed  by  the  ice. 

Were  it  not  for  the  willingness  and  the  ability  of  the 

company  to  carry  their  employees  through  the  slack 

winter  season  there  would  be  great  hardship.     The 

outside  shopkeepers  have  neither  the  security  nor 

the  capital  to  permit  them  to  give  six  or  nine  months 

credit.     During  four  months  of  the  year  there  is 

practically  no  employment  in  the  mining  districts 

and  during  that  period  a  debt  will  be  incurred  which 

cannot  be  paid  off  before  the  summer  is  nearly  over. 

However  long  the  credit  the  storekeeper  can  obtain 

from  the  wholesale  merchant  it  is  not  long  enough 

for  him  to  wait  six  or  nine  months  for  payment. 

TABLE*  SHOWING  IRREGULARITY  OF  EMPLOYMENT 
IN  MINING  DISTRICT. 


MINER  S 
NAME. 


A. 
B. 
C. 
D. 
E. 
F. 
G. 
H. 
I., 

J. 


TOTAL 

DAYS  IN 

YEAR. 


173 

i88 
207 
192 

189 
173 
195 

158 

184 


< 


4 


3 
3 

18 

3 
17 
2 
2 
II 
2 
2 


< 


18 

19 

18 

18 

19 
17 

l8 


< 


3 

17 
17 

18 

17 
17 

18 


19  17 


18 
i8 


16 

18 


24 

25 
26 
26 

25 
26 

25 
24 

19 

25 


21 
21 
21 
21 
21 
20 
18 
20 
18 
21 


H 
en 

D 

O 

< 


26 
26 
26 
26 
26 
26 

19 

25 

19 
26 


H 

(A 


23 

25 

24 
24 

25 
25 
25 
25 
23 
24 


H 
U 
O 


22 
23 
23 
23 
23 
23 
19 
23 
19 
23 


O 


16 
14 
17 
17 
14 

17 
15 

16 

14 
17 


o 

Q 


It 
10 
IT 
II 
10 
II 

8 

10 
5 
4 


*  Canada  Labor  Com.  Nova  Scotia  Evidence^  p.  464 .  from  the 


W-. 


The  Truck  System  and  the  Credit  System.     295 


It  should  be  remembered,  moreover,  that  many  of 
the  objections  to  the  truck  system  are  valid  also  as 
against  the  credit  system  which,  in  one  form  or 
other,  is  an  absolute  necessity  when  employment  is 
irregular.  For  the  laborer  it  is  quite  as  hard  to 
work  his  way  out  of  debt  to  a  private  storekeeper, 
and  probably  more  worrying  because  the  storekeeper 
has  not  the  same  security  for  his  debt.  The  private 
storekeeper  has  no  means  of  coercion  and  must, 
therefore,  charge  higher  prices  to  cover  bad  debts. 
The  company  stores,  as  a  matter  of  fact,  stop  wages 
till  the  debt  is  reduced  to  manageable  proportions.* 
The  effect  of  the  truck  system  of  wages  payment  on 
the  utility  of  the  reward  under  these  circumstances 
will  be  measured  by  the  difference  between  credit 
prices  and  company  store  prices,  and  the  greater  or 

evidence  of  C.  H.  Rugby,  Supt.  of  Glace  Bay  Mining  Co.  It  should 
be  stated  however  that  in  the  opinion  of  my  correspondent  Mr.  Mac- 
donald  there  would  be  no  difficulty  in  supplying  the  wants  of  the 
community  during  the  slack  season  were  the  company  stores  closed 
and  supports  his  view  by  citing  the  fact  that  when  the  Dominion 
Coal  Co.,  purchased  the  mine  at  Port  Morien  (C.  B.)  the  former 
owner  abandoned  the  stores  on  the  rst  of  October  while  the  new  Com- 
pany did  not  open  the  stores  till  the  ist  of  May  following.  There  was 
he  asserts  neither  want  nor  distress  in  the  district  that  winter  more  than 
there  had  been  in  previous  winters  when  the  stores  were  open — the 
outside  storekeepers  being  quite  able  to  carry  their  customers  when 
they  were  no  longer  subject  to  the  unfair  competition  of  the  com- 
pany stores. 

*  The  Nova  Scotia  Act  against  Truck  is  practically  a  dead  letter 
because  it  permits  contracting  out.  Frequently  the  employer  does 
not  even  go  to  the  trouble  of  requiring  the  formal  order  from  his  men 
which  permits  him  to  deduct  the  store  bill  from  the  wages  as  they 
are  earned. 


I 


w 


il  I; 


1 

1 

1 

iiii^L^ 

2cj6 


The  Bari^ain  Theory  of  Wages. 


less  dc'i^rcc  of  personal  freedom  which  the  victims  of 
the  two  systems  retain.  The  worker's  wage,  when 
thus  paid,  is  not  sweated  by  the  amount  of  the  profits 
of  the  store ;  for  a  large  part  of  these  profits  is  due  to 
superior  trading  advantages.  The  profits  of  the 
stores  arc  without  doubt  very  large;  and  one  of  my 
correspondents  affirms  that  the  mine  in  his  district 
is  run  for  the  store  profits.  The  Dominion  Coal 
Company  was  offered,  it  was  said,  one  hundred  and 
fifty  thousand  dollars  for  the  right  to  run  their 
stores;  and  however  philanthropic  the  company 
might  be,  men  do  not  go  into  the  market  to  pur- 
chase charitable  organizations.  The  defenders  of 
the  system  generally  protest  too  much  about  the 
purity  of  their  motives.  There  is  nothing  disgrace- 
ful in  a  company  trying  to  add  to  its  ordinary  profits 
the  profits  of  retail  shopkeeping;  the  disgrace  lies 
in  the  abuse  of  the  position  which  the  employer 
occupies. 

Of  the  two  important  elements  which  form  the 
lower  limit  of  wages  the  methods  of  industrial  re- 
muneration has  the  greatest  influence  on  the  utility 
of  the  reward.  Less  directly,  the  disutility  of  labor 
may  be  increased  or  diminished  by  the  method  of 
payment  because  the  disutility  is  more  than  the 
physical  energy  expended.  With  cash  payments 
the  moral  elements  which  enter  into  the  sum  of  dis- 
utilities are  likely  to  be  reduced  to  a  minimum,  for 
the  laborer  in  this  way  obtains  the  maximum  of 
personal  freedom.  With  truck  payments  the  dis- 
utility is  increased  and  the  utility  of  the  reward  is 


Effect  on  the  Employer  s  Estimate.  297 


decreased;  but  the  fighting  strength  of  the  laborer 
is  so  reduced  by  the  system  that  he  is  able  to  offer 
little  effective  resistance  to  the  lowering  of  the 
lower  limit  of  wages.  Practically  the  methods  of 
remuneration  exercise  little  influence  in  raising,  but 
may  exercise  considerable  influence  in  reducing, 
the  lower  limit,  thus  rendering  an  actual  lower  wage 
possible. 

The  chief  elements  of  the  upper  limit — the  em- 
ployer's estimate — may  be  affected  by  the  method 
of  industrial  remuneration.  The  efficiency  of  the 
laborer  may  be  increased  or  diminished,  mainly  by 
the  effect  on  the  moral  conditions  of  ef^ciency ;  and 
the  wages  fund  may  be  augmented. 

The  output  of  labor  is  not  a  mere  question  of 
strengtl.  and  knowledge.  Willingness  and  hopeful- 
ness and  ihe  disposition  to  do  one's  best  are  almost 
as  important  as  physical  and  intellectual  qualities; 
and  these  moral  qualities  are  peculiarly  liable  to  be 
influenced  by  the  manner  in  which  the  wages  are 
paid.  If  the  laborer  is  paid  promptly,  in  full  and  in 
cash,  he  is  much  more  likely  to  do  his  best  than 
when  his  wages  are  curtailed  by  all  sorts  of  petty 
exactions  and  his  use  of  them  restricted  by  all  sorts 
of  conditions. 

Profit  sharing  and  piece  work  tend,  directly  and 
indirectly,  to  raise  the  efficiency  of  the  individual 
and,  generally  also,  >  .'  all  in  the  establishment,  and 
thus  tend  to  permit  a  higher  wage  to  be  paid.  Not 
only  are  the  expenses  of  management  and  super- 
vision decreased,  while  there  is  less  waste  of  material, 


!i» 


298 


The  Bargain  Theory  of  Wages. 


],  I 


li'! 


«iM-  ':; 


but  the  hope  of  greater  gains  acts  as  a  powerful  in- 
centive to  greater  exertion.  Workers  paid  by  these 
methods  reahze,  more  or  less,  that  they  arc  being 
treated  with  justice  and  consideration,  and  they  are 
less  likely  than  those  on  time  wages  to  be  eye  ser- 
vants merely. 

When  wages  are  paid  in  cash,  any  feeling  of  resent- 
ment which  the  conditions  of  labor  may  have  caused, 
generally  disappears  when  the  wages  are  paid,  un- 
less the  wages  are  very  inadequate;  but  when  the 
control  of  the  employer  continues  till  the  last  penny 
earned  has  been  expended  the  laborer  continues  to 
feel  his  economic  dependence  and  to  feel  that  there 
is  no  part  of  his  life  which  he  can  call  his  own.  This 
naturally  leads  to  inefificiency,  because  it  tempts  the 
laborer  to  try  to  get  "  even  "  in  some  way.  Pay- 
ment of  wages  in  truck  or  store  orders,  or  at  long 
intervals,  and  then  not  up  to  date,  is  apt  to  create 
a  sense  of  irritation  which  materially  reduces  eflfi- 
ciency.  Under  the  extreme  forms  of  the  truck  sys- 
tem, where  the  laborer  is  convinced  of  the  inevit- 
ableness  of  the  tyranny  and  the  injustice,  a  premium 
is,  in  effect,  placed  upon  idleness  and  thriftlessness. 
The  laborer  who  owes  the  company  a  large  sum 
knows  that  work  is  assured  to  him  whenever  work 
is  going,  not  because  he  is  a  good  workman,  but  be- 
cause the  company  naturally  desires  to  collect  part 
of  what  he  owes  them.  It  is  their  interest  to  find 
him  work.  He  believes  that  he  has  been  cheated 
by  higher  prices  and  thinks  that  his  real  is  not  half 
his  nominal  indebtedness ;  and  the  result  is  that  Hq 


The  Wages  Fund. 


299 


tries  to  ^ct  even  with  his  cmi)loycrs  by  cheating 
them  with  dishonest  and  scamped  work.  Even 
should  he  remain  honest,  the  incentive  of  hope  has 
disappeared.  The  most  efficient  workmen  are  dis- 
couraged by  the  system,  for  they  quickly  learn  that 
not  efficiency,  but  indebtedness  at  the  store,  is  the 
best  claim  for  work  when  employment  is  scarce. 
Payment  of  wages  in  kind,  tends  not  only  to  reduce 
efficiency,  but  also  to  destroy  those  qualities  which 
promote  efficiency  and  to  encourage  habits  which 
promote  inefficiency. 

The  wages  fund,  the  resources  of  the  employer  for 
the  payment  of  wages,  is  directly  affected  by  the 
methods  of  remuneration.  The  payment  of  wages 
in  cash  at  the  end  of  each  week  requires  a  large 
amount  of  capital,  a  larger  amount  than  is  required 
by  any  other  method  of  remuneration  to  pay  the 
same  wages.  Payment  in  kind  means  a  large  econ- 
omy of  capital  and  allows  a  larger  business  to  be 
done  on  a  given  capital.  It  reduces  payment  almost 
entirely  to  a  matter  of  bookkeeping,  and  by  analogy 
might  be  called  the  clearing-house  system  applied 
to  wage  payments.  Theoretically,  it  might  be  said 
that  the  truck  system  would  lead  to  larger  wages 
because  the  employer  commands  a  larger  capital. 
The  employer  is  able  to  augment  his  resources  by 
all  the  long  credit  he  can  command  from  the  whole- 
sale supply  houses;  and  may  be  able  to  market  a 
large  part  of  his  output  before  these  obligations 
have  to  be  met ;  and  not  only  is  the  capital  thus 
augmented,  but  additional  profits  are  earned  on  the 


300 


The  Bargain  Theory  of  Wages, 


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hi* 


I 


whole  of  it.  This  holds  also  of  deferred  payments 
and  of  payments  by  the  month  or  the  season  instead 
of  by  the  week.  In  many  instances  the  reasons 
which  are  offered  in  defense  of  this  practice,  against 
which  the  laborer  protests,  when  stripped  of  their 
philanthropic  and  paternalist  pretence,  amount  sim- 
ply to  this,  that  a  great  saving  in  capital  is  thus 
secured.  There  is  not  only  the  saving  in  office  ex- 
penses when  the  pay  sheets  are  made  up  at  leisnre 
once  a  month  instead  of  once  a  week;  there  is  also, 
and  in  the  case  of  large  concerns  this  becomes  a  very 
important  item,  the  saving  of  the  interest  on  the 
sum  paid  out  in  wages.*  When  part  of  the  pay- 
ment is  withheld  for  some  weeks,  as  in  the  case  of 
employers  who  pay  on  the  20th  of  the  month  up  to 
the  end  of  the  preceding  month,  or  when  part  is  re- 
tained in  the  employer's  hands  to  the  end  of  the 
year,  as,  for  instance,  the  dividends  in  a  profit- 
sharing  scheme,  or  indefinitely — e.  g.,  contributions 
to  a  provident  fund — the  employer  simply  retains 
part  of  the  wages  as  an  unsecured  investment,  and 
practically  compels  his  employees  to  subscribe  to 
the  capital  required  for  his  business. 

Wages,  however,  do  not  necessarily  rise  because 
the  resources  of  the  employer  are  augmented.  The 
wages  fund  is  only  one  factor  in  the  determination 
of  the  upper  limit ;  and  the  employer  is  under  no 
obligation,  physical  or  moral,  to  pay  out  the  whole 
of  his  funds.  An  increased  wages  fund  simply 
means  that  higher  wages  are  possible  without  neces- 

*  Ontario  Bureau  of  Statistics,  Report,  1886,  iv.,  p.  18. 


W 


immiiiini  JKWI 


Truck  System  a  Rudimentary  Credit  Instrtimejit.  301 


Luse 
'he 

i;ion 
no 

lole 

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:es- 


sitating  a  readjustment  of  the  reward  of  the  different 
economic  factors  in  production.  Moreover,  this  pos- 
sibility may  be  at  the  actual  expense  of  the  workers 
themselves.  They  are  made  to  contribute  to  the 
wages  fund  by  exactions  levied  from  the  wages  of 
their  past  labor.  They  are  denied  the  right  to 
spend  the  contract  price  of  their  labor,  when  and 
where  they  choose ;  and  the  probability  of  increased 
compensation  in  the  future  depends  on  the  strength 
of  their  economic  position.  Those  methods,  how- 
ever, which  increase  the  wages  fund,  tend  to  reduce 
the  laborer's  efficiency  and  to  weaken  his  position 
as  a  bargainer;  and  the  possible  good  is  generally 
converted  into  an  actual  evil.  The  effect  of  the  truck 
system  is,  when  the  other  wages  factors  are  taken 
into  consideration,  to  depress  rather  than  to  raise 
wages. 

In  a  new  country,  where  money  is  scarce  and 
banking  facilities  rare,  deferred  payments  or  pay- 
ments in  kind  may  be  a  practical  necessity.  Were 
wages  paid  in  cash  they  would  necessarily  be  low ; 
and  under  these  conditions  even  the  truck  system 
iji^iy  be  a  practical  benefit  to  the  working  classes. 
/mIl  as  the  country  develops,  there  is  less  necessity 
for  making  use  of  this  primitive  credit  instrument 
and  the  system  is  banished  from  the  industrial  cen- 
tres to  the  districts  where  banking  facilities  are  still 
unprovided,  and  to  industries  dependent  on  the 
seasons,  where  a  long  period  must  elapse  before  the 
product  is  marketed.  There  is  something  so  mean 
in  the  practice  of  throwing  part  of  the  burden  on 


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302 


T/ie  Bargain  Theory  of  Wages. 


the  laborer,  that  so  soon  as  another  means  of  dis- 
tributing habilities  over  a  longer  period  is  devised, 
every  firm  which  has  any  sort  of  credit  and  some 
moasure  of  self-respect,  abandons  of  its  own  accord 
the  attempt  to  mulct  the  wages  of  its  employees. 
Except  in  the  seasonal  industries,  it  is  practiced 
now  by  the  "  non-profit  "  employers  only — those 
whose  credit  is  bad  and  who  have  a  hard  s<-ruggle  to 
maintain  their  position.  One  of  few  surviving  com- 
pany stores  in  the  province  of  New  Brunswick,  out- 
side of  the  lumber  industry,  is  conducted  by  a  firm 
which  has  already  failed  several  times ;  and  this  in- 
stance may  be  taken  as  typical  of  the  condition  of 
those  firms  which  retain  the  system  when  banking 
facilities  are  provided.  The  assistance  which  such 
firms  are  able  to  obtain  by  this  method  enables 
them  longer  to  continue  the  struggle  against  their 
more  fortunate  or  more  competent  rivals.  The  de- 
struction of  the  system  by  legislative  interference 
would  be  a  death  blow  to  such  employers;  though 
it  is  not  possible  to  agree  altogether  with  a  corre- 
spondent of  the  Ontario  Bureau  of  Statistics  in  as- 
serting that  the  abolition  of  the  truck  system  and 
of  deferred  payments  would  place  a  premium  on 
large  industry.  It  would  give  a  certain  advantage 
to  those  who  had  capital  enough  for  the  business 
they  had  undertaken.* 

*  The  truck  system,  however,  is  both  effect  and  cause  of  the  scar- 
city of  money.  During  the  recent  agitation  in  Cape  Breton  against 
the  truck  system  it  was  repeatedly  asserted  that  money  is  being  driven 
out  of  circulation  (see  the  petition  of  the  Sydney  Board  of  Trade 


[  dis- 
used, 
some 
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Dyees. 
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the  scar- 
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Effect  on  the  Bargaining  Process, 


303 


It  remains  now  to  discuss  the  influence  of  the 
methods  of  remuneration  on  comparative  strength 
of  employer  and  employed  in  the  wages  bargain 
which  determines  where  between  the  limits  actual 
wages  are  fixed.  The  method  of  remuneration  may 
increase  or  decrease  the  mobility  of  labor,  may  affect 
the  capacity  for  combination  and  collective  bargain- 
ing, and  may  strengthen  or  weaken  the  general 
character  of  the  laborer. 

The  mobility  of  labor  depends  partly  on  the 
knowledge  the  laborer  has  of  the  relative  conditions 
of  labor  in  his  own  district  and  elsewhere.  Causes 
which  prevent  him  from  acquiring,  or  even  render  it 
more  difficult  for  him  to  acquire,  this  knowledge  in- 

already  quoted) ;  and  Mr.  Ochiltree  Macdonald  stigmatizes  the  ac- 
quiescence of  the  individual  in  the  system  as  a  crime  against  honest 
currency.  In  many  districts  trade  is  reduced  almost  to  the  primitive 
form  of  barter  to  the  great  disadvantage  of  those,  farmers  for  instance, 
who  have  anything  to  sell.  If  these  contentions  are  true  a  situation 
exists  in  that  district  which  can  be  cured  by  legislation  only,  enforcing 
the  payment  of  wages  in  cash  without  any  possibility  of  contracting 
out.  A  primitive  and  vicious  credit  system  seems  to  have  obtained 
such  a  hold  on  the  community  that  there  is  no  room  for  the  more  re- 
fined credit  instruments  provided  by  the  banks.  It  required  an  eco- 
nomic cataclysm  to  overthrow  the  truck  system  in  Newfoundland  which 
had  been  encouraged  by  an  unsound  banking  system  ;  and  the  inter- 
vention of  the  Canadian  banks  after  the  crisis  of  1894  has  rendered 
it  easier  to  make  the  necessary  departure  from  a  system  which  had  in- 
volved the  whole  community  in  ruin. 

The  close  connection  between  an  inadequate  banking  system  and 
the  prevalence  of  the  truck  system  finds  its  best  illustration  in  the 
southern  states  of  the  American  Union.  There  the  truck  system  has 
attained  its  fullest  sway  and  there  currency  is  scarcer  and  banking 
facilities  less  frequent  than  in  any  other  section  of  the  country. 


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304 


T/ic  Bargahi  Theory  of  Wages. 


terfere  with  the  mobility  of  labor.  Money  wages 
are  the  calculation  form  of  the  reward;  and  when 
the  reward  is  not  paid  in  money,  it  is  less  easy  for 
him  to  make  the  comparison.  He  may  not  have 
the  knowledge  or  the  skill  to  calculate  what  the 
wages  are  even  in  his  own  district.  Mobility  de- 
pends also  on  freedom  from  restrictions;  and  weekly 
cash  payments  alone  give  the  laborer  full  command 
of  his  resources  and  leave  him  free  to  make  what 
use  he  pleases  of  them.  A  system  of  deferred  pay- 
ments ties  the  laborer  to  the  employment  he  has. 
To  change  he  must  sacrifice  the  deferred  pay.  The 
fact  that  the  participant  in  a  profit-sharing  scheme 
has  no  legal  right  to  claim  a  share  in  the  profits, 
till  the  financial  year  is  complete,  restricts  his  move- 
ments; and  the  benefits  of  a  prov'dent  fund  can  be 
obtained  by  those  only  who  remain  permanently  in 
their  present  employment.  When  wages  are  paid 
at  infrequent  intervals  and  part  of  the  pay  is  re- 
tained in  the  hands  of  the  employer,  the  intention 
frequently  is  to  restrict  the  laborer's  freedom  of 
movement.  One  firm  posted  a  notice  in  its  factory 
that  "  persons  leaving  the  service  of  the  company 
without  serving  the  notice  required  shall  forfeit  the 
arrears  of  pay  due  to  them  "  * ;  and  though  the  action 
would  be  illegal,  and  the  employees  might  know  it 
to  be  so,  the  notice  would  doubtless  have  the  de- 
sired effect,  owing  to  the  fact  that  it  would  require 
a  costly  suit  at  law  to  force  the  employer  to  pay. 
The  laborer  who  has  arrears  of  pay  in  the  hands  of 

*  Canadian  Labor  Commission,  Quebec  Evidence  p.  1301. 


The  Mobility  of  Labor. 


505 


his  employer  has  given  hostages  to  the  extent  of  the 
arrears.  Frequently,  even  when  the  employer  is 
honest  and  law-abiding,  he  will  pay  a  workman  who 
desires  to  leave  before  the  monthly  pay  day  comes 
round  by  means  of  a  due-bill  which  is  cashed  at  a 
discount.  In  some  cases,  even,  a  deduction  is  made 
from  his  wages  to  pay  the  expenses  of  securing  a 
new  workman.*  The  truck  system  involves  a  still 
greater  restriction  of  mobility.  When  a  workman 
has  got  into  debt  at  the  company  store,  his  mobility 
is  practically  nil  till  he  has  worked  his  way  out; 
and  it  is  said — and  it  is  antecedently  probable — that 
the  company  oflficials  endeavor  to  keep  him  in  debt 
in  order  to  retain  their  control  over  him. 

Trade-unionists  are  constantly  discussing  the 
methods  of  remuneration  from  their  point  of  view. 
They  naturally  find  the  ideal  method  in  weekly  cash 
payments.  They  contend  that  any  other  system 
leads  to  the  isolation  and  consequent  weakness  of 
the  individual  worker.  They  criticise,  and  if  neces- 
sary, agitate  against,  any  method  which  encourages 
the  laborer  to  deal  with  his  employer  directly  and 
in  his  own  strength.     Piece  work  and  profit  sharing 

*  Canadian  Labor  Com.,  Ontario  Evid(nce,  p.  1190  : — "  They  will 
charge  him  for  the  passage  fee  of  another  man  to  bring  up  (to  the 
woods)  in  his  place  and  let  him  go  ;  and  I  have  seen  some  concerns 
not  pay  him  at  all.     If  he  wants  to  go  he  goes  without  any  payment." 

It  was  argued  before  the  English  Labor  Commission  that  the  pay- 
ment of  wages  to  sailors  at  frequent  intervals  would  increase  the 
danger  of  desertion.  The  present  practice  therefore  involves,  rea- 
sonably enough  perhaps,  a  restriction  of  the  mobility  of  that  class  of 

workers.     Spyers  :  Labor  Question,  p.  200. 
ao 


3o6 


The  Bargain  Theory  of  Wages. 


1  i 


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A 


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II 


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both,  they  consider  objectionable  because  in  this 
way  the  laborer  is  tempted  to  be  disloyal  to  his  class 
by  the  prospect  of  extra  rewards  for  himself.  Profit 
sharing  has  indeed  been  explicitly  advocated  as  a 
method  of  weakening  the  power  of  the  unions. 
They  do  not,  as  has  been  so  often  asserted,  object 
to  the  higher  reward  of  superior  efficiency ;  but  they 
dread  the  effect  of  the  stimulus  to  individual  exer- 
tion on  the  solidarity  of  the  working  classes;  and 
they  are  rightly  of  the  opinion  that  the  interests  of 
all  are  best  secured  by  union  and  combination.  To 
deferred  payments  and  the  truck  system  they  offer 
the  most  strenuous  opposition  because  by  these 
methods  the  individual  worker  is  made  to  feel  his 
dependence  on  his  employer.  Weakness  and  de- 
pendence even  more  than  the  desire  for  exceptional 
wages  are  isolating  forces;  and  the  objections  of  the 
unions  to  these  methods  is  very  strong. 

In  spite  of  all  that  has  been  said  by  Carlyle  and 
others  against  the  cash  nexus,  there  is  no  reason 
to  doubt  that  it  is  the  system  which  promotes  the 
best  interests  of  the  working  classes.  Paternalism 
and  sentimentalism  have  been  discredited  by  the  ex- 
perience of  generations.  It  is  better  that  the  rela- 
tions between  employer  and  employed  should  be  on 
a  pure  basis  of  contract  and  that  no  margin  of  in- 
definiteness  should  remain.  What  is  left  to  be 
understood  is  generally  left  to  be  misunderstood 
and  interpreted  against  the  interests  of  the  weaker. 
Weekly  cash  payments  are  best  for  the  working 
classes  in  almost  every  way.     The  employee  remains 


w. 


Effect  on  General  Economic  Character.       307 


his  own  master  when  the  contract  period  is  over  and 
the  employer  has  no  right  to  interfere.  Under  the 
truck  system  the  laborer  is  under  continuous  super- 
vision in  his  home  as  well  as  in  the  workshop ;  and 
one  can  understand  why  indignant  opponents  of  the 
system  have  denounced  it  as  scarcely  disguised 
slavery.  What  is  true  of  the  truck  system  is  true 
also,  to  a  less  degree,  of  every  method  of  remunera- 
tion which  keeps  the  laborer  dependent  on  his  em- 
ployer after  the  contract  period  has  expired.  This 
continuous  supervision  and  subjection  is  not  con- 
ducive to  the  building  up  of  strong  characters;  and 
the  most  disastrous  effect  of  these  methods  is  to 
weaken  the  general  character  of  the  laborer  as  a 
wages  bargainer.  Trade-unionism  is  but  a  substitute 
for  character,  and  the  mobility  of  labor  is  a  result ; 
tl.  character  of  the  laborer  is  what  tells  in  the  wages 
bargain — the  determination  of  where  between  the 
limits  actual  wages  shall  be  fixed. 

Weekly  payments,  according  to  some  who  practise 
other  methods  of  remuneration,  promote  thriftless- 
ness  and  dissipation  and  prevent  the  accumulation 
of  property;  and  one  witness  before  the  Canadian 
Labor  Commission  *  claimed  that  the  only  differefnce 
between  weekly  and  fortnightly  payments  was  that 
the  men  go  drunk  once  a  week  instead  of  once  a 
fortnight.  On  the  other  hand  the  laborers  strongly 
favor  weekly  payments,  preferring^  it  may  be,  free- 
dom to  compulsory  sobriety  every  alternate  Satur- 

*  Nova  Scotia  Evidence,  p.  405  ;  seeialso  ibia,,  p,  427,  and  New 
Brunswick  Evidence,^,  ^^l, 


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11  v  ■ 

308 


T/ie  Bargain  Theory  of  IVa^ 


day.  They  indignantly  resent  the  insinuation  that 
they  are  not  able  to  manage  their  own  domestic 
affairs  and  the  miners  of  Cape  Breton  insist  that 
they  are  as  able  to  spend  their  wages  as  wisely  as 
the  workmen  in  Great  Britain  who  must  be  paid  in 
cash.* 

The  assumption  that  the  workman  cannot  manage 
his  own  affairs  weakens  his  character;  and  the  effect 
of  the  truck  system,  which  is  sometimes  justified  on 
that  ground,  is  to  destroy  all  self-reliance  and  self- 
respect  and  remove  all  motive  to  honesty  and  effi- 
ciency of  work.  The  truck  sj'stem,  by  its  injustice, 
makes  the  worker  practise,  and  justify,  all  sorts  of 
underhand  evasions  of  his  contract.  Above  all  it 
promotes  thriftlessness  and  idleness.  The  Hon. 
Robert  Drummond  said  from  his  place  in  the  Legis- 
lative Council  of  Nova  Scotia  that  the  system  was 
an  abomination  and  a  premium  on  beggary ;  and 
elsewhere  he  declared  that  it  had  a  "  tendency  to 
foster  thoughtlessness  and  beggary."  This  is  the 
natural  effect  of  the  truck  system  everywhere. 
Those  who  run  bills  at  the  store  are  the  favorites  in 
the  factory  and  the  mine.  To  encourage  the  others, 
they  receive  the  best  places  in  the  mine,  and  during 
the  slack  season  they  are  given  what  work  there  is 
to  be  given  that  they  may  have  an  opportunity  of 
reducing  their  debt  to  the  store.  The  industrious 
and  thrifty  find  that  constantly  the  idle  and  the  dis- 
sipated have  the  preference.  Those  who  take  no 
responsibility  for  themselves,  but  run  up  bills,  know- 

♦  Newspaper  report  of  a  meeting  at  Glace  Bay,  Nov.  13,  1896, 


$ 


The  Truck  System  in  Neivfoiindland.         309 


ing  that  it  is  the  company's  interest  to  provide  them 
with  work,  are  the  fortunate  ones  of  the  community; 
and  the  whole  community  is  demoraHzed  through 
their  influence. 

The  economic  crisis  in  Newfoundland  in  1894  was 
a  striking  instance  of  the  complete  demoralization 
of  a  whole  community  under  the  truck  system.  The 
system  was  of  old  standing.  Nearly  a  hundred 
years  ago  the  governor  of  the  island  tried  by  an 
edict  to  suppress  it.  It  was  not  destroyed,  but, 
on  the  contrary,  tightened  its  grasp  on  the  busi- 
ness of  the  country.  Everyone  deplored  it,  but  no 
one  could  give  it  up.  It  promoted  dishonesty  and 
crime  and  universal  distrust;  but  it  required  an  eco- 
nomic disaster  to  overthrow  it.  Everyone  suffered 
by  it,  the  workmen  most  of  all.  He  was  ground 
between  the  upper  and  the  nether  millstones — the 
fickle  sea  and  the  burden  of  his  long-standing  debts. 
He  could  hardly  call  himself  his  own,  and  many  a 
Newfoundland  fisherman  passed  from  the  cradle  to 
the  grave  without  ever  having  seen  a  piece  of  money. 
No  one  really  profited  by  the  system,  and  Black 
Monday,  the  loth  of  December,  1894,  was  the  day  of 
salvation  for  the  "  planter"  as  well  as  the  fisher- 
man. 

The  effect  of  the  truck  system  on  the  character  of 
the  laborer  depends  altogether  on  the  degree  of 
coercion  employed.  Where  no  compulsion  is  used, 
company  stores  with  their  superior  trading  facilities 
might  prove  almost  as  great  a  benefit  as  the  co- 
operative stores.     It  is  generally  claimed  that  the 


f 


ii  ' 


:l: 


i  I 


I' 


310 


T/ie  Bargain  Theory  of  Wages, 


workman  is  left  free  and  some  employers  prefer  to 
run  the  stores  for  the  benefit  of  the  workmen.  But 
it  is  difficult  to  say  what  is  and  is  not  compulsion. 
Many  witnesses  before  the  Canadian  Labor  Commis- 
sion began  by  denying  that  there  was  any  sort  of 
compulsion  to  deal  in  a  company  store ;  and  ended 
by  admitting  that  there  was  discrimination  in  favor 
of  those  who  dealt  there.  The  prospect  of  an  extra 
profit  is  a  sufficient  incentive  for  the  exercise  of  some 
kind  of  coercion.  The  companies,  as  one  man  said 
to  me,  who  had  experience  in  running  these  stores, 
are  not  in  it  for  their  health,  and  a  member  of  the 
legislature  of  New  Brunswick,  whose  firm  used  to 
run  several  such  stores,  assured  me  that  where  com- 
pulsion in  some  form  is  not  exercised  the  stores  are 
seldom  profitable. 

Compulsion  in  its  most  brutal  form  is  rarely 
exercised  anywhere  now  in  Canada  but  in  the 
shape  of  discrimination  it  still  flourishes  in  Cape 
Breton.  Freedom  may  be  absolute  in  name,  but  it 
may  be  little  more  than  freedom  to  starve.  When 
a  storekeeper  is  able  to  place  those  who  are 
not  his  customers  at  a  disadvantage  in  the  com- 
petition for  work  compared  with  those  who  deal 
with  him  he  can  bring  a  good  deal  of  pressure  to 
bear.  The  evidence  taken  by  the  Canadian  Labor 
Commission  affords  many  instances  of  this  indirect 
compulsion.  Employers  confessed  that  they  did 
prefer  those  who  dealt  at  the  store,  that  they  did 
discriminate  in  their  favor,  that  unmarried  men  were 
not  so  likely  to  find  employment  as  married  men 


Methods  of  Industrial  Remuneration, 


311 


with  families  who  dealt  at  the  store.*  Pressure  ex 
crcised  in  this  form  is  practically  compulsion ;  and 
few  arc  strong  enough  to  resist  it.  Circumstances 
naturally  determine  what  amount  of  compulsion  can 
be  used.  An  obstinate  man  with  great  social  or 
political  influence  may  resist  successfully  and  receive 
his  wages  in  cash;  but  the  greater  the  necessity  of 
the  individual  the  more  likely  he  is  to  succumb 

The  truck  system  destroys  the  freedom  of  the 
laborer;  and  with  his  freedom  goes  his  power  of 
resistance.  He  is  no  longer  master  of  himself  and 
therefore  there  is  less  hope  that  in  the  trial  of 
strength  which  precedes  the  determination  of  the 
wages  bargain  the  victory  will  lean  to  his  side. 

^ot  ^7  ^■'"'''  ^'^'^''''''  P-  3^7 '  ^^^  Brunswick  Evidence^  p. 
407,  et passim.  •  ^ 

FINIS. 


1!^  r 


ilN 

fs^. 

V' 

:;'-7''t 

1 

^11 

1- 

1    '       ■' 

1 

i   I' 

It/' 

iiv: 

1- 

INDEX. 


Autonomous  producers,  48-  ) 


B 


Banking  systems,  importance  of, 
to  labor,  159,  301,  302 

Bargain,  wages  :  comparative 
strength  of  bargainers,  162; 
strength  of  laborers  as  bar- 
gainers, 164-173  ;  disabilities 
of  labor,  166 ;  trade-union- 
ism as  collective  bargaining, 
167,  264-270 ;  substitutes  for 
character  in,  168-173 

Booth  (Charles),  on  the  organiza- 
tion of  dock  labor,  20  ;  Life 
and  Labor  of  the  People^  rgo, 
215,  219,  220,  244,  247 

BrentanOy  on  wages  and  output, 
87,  90,  91,  105  ;  reconciliation 
of  economy  of  high  wages  and 
economy  of  low,  107-109 

Burnet  (Mr.),  out-of-work  sta- 
tistics, 239 


Cu'^i'nes  (Prof.),  non-competing 
gi  nps,  182;  disposable  fund 
of  laoor,  185 

Canadian  Labor  Commission : 
summer  and  winter  wages,  24 ; 
shorter  hours  and  efficiency, 
85  ;  effect  of  immigration  on 


wages,  250  ;  trade-union  mini- 
mum wage,  269 ;  the  util- 
ity of  reward,  285-287 ;  truck 
system  and  retail  stores,  291- 
293 ;  truck  prices,  compara- 
tive, 293 ;  irregularity  of  em- 
ployment in  mines,  294,  295  ; 
truck  system  and  mobility, 
305  ;  methods  of  remuneration, 
effect  of,  on  economic  char- 
acter, 307  ;  truck  system  and 
compulsion,  311 

Canadian  migration,  202,  204, 
206  ;  "  exodus,"  205  ;  restric- 
tions on  movement,  207  ;  Cor- 
liss Bill,  208,  note  ;  tenants  and 
owners  (diagram),  210-213  ; 
tendency  to  level  wages  up, 
215  ;  migration  by  stages, 
220-222  ;  distribution  of  Cana- 
dian immigrants  in  United 
States,  221,  222  ;  seasonal  mi- 
gration, 224-226  ;  loss  of  popu- 
lation due  to  emigration,  235 

Capital :  Kicardo's  definition,  45  ; 
are  wages  paid  out  of?  46,  55- 
69 ;  function  of,  53  ;  as  in- 
choate wealth  (Prof.  Taussig), 
56 

Capitalist,  intention  of,  the  de- 
termining factor  in  wages,  3, 
60 

Census  Reports  :  United  States, 
194,  195  ;  British,  203  ;  Cana- 
dian, 215 


313 


314 


Index, 


'.  ;! 


f- 


•  I ' 


i| 


m 


'M 


Charity,  indiscriminate,  effect  of, 

22 

Claimants  on  the  product,  satis- 
fied according  to  economic 
strength,  123  ;  no  right  to  a 
share  of  product  inherent  in 
any,  124  ;  how  affected  by  law 
of  substitution,  125 

Commodities,  demand  for,  and 
demand  for  labor,  66-69 

Competition  in  Wages-Fund 
Theory,  Oy  ;  according  to  sec- 
ond version  of  Productivity 
Theory,  95 

Concomitant  variations,  method 
of,  applied  to  wages  theory, 
24-28,  81 

Contribution  of  labor  to  produc- 
tion, not  physical  but  eco- 
nomic, 119  ;  confusion  of  ideas 
of  production  and  distribution, 
123,  126 

Co-operation  :  of  factors  in  pro- 
duction, 121,  122  ;  ideal  of, 
150,  note 

Corliss  Bill,  208,  note 

Correspondence  between  labor 
conditions  and  wage  theories,  3 

Cost  of  production  of  labor,  8  ; 
wages  as  an  element  of,  g  ;  of 
living  and  wages,  24  ;  wage 
and  labor  cost,  105 


D 


Defects  of  the  historical  theoric  • 
of  wages,  129-135 

Degradation  :  of  wage  earning, 
Mr.  Sedley  Taylor  on,  150  ;  of 
labor  and  mobility,  1S3 

Demand  for  commodities  and  the 
demand  for  labor,  66-6g 

Dependence  of  laborer  on  em- 
ployer exaggerated  in  Wages- 
Fund  Theory,  59 

Distribution  of  product  accord- 
ing to  claims,  not  according  to 
contributions,  123-126 


Disutility  of  labor,  more  realized 
the  less  remote  the  exertion, 
137  ;  makes  labor  a  personal 
commodity,  13S 

Domestic  servants  and  mobility, 
180  ;  wages  of,  289 

Drage  ((jcof.),  trade-unions  -d 
mobility,  177,  179 

Drummomi {Wow.  Robt  )  on  op- 
position to  company  stores  in 
Nova  Scotia,  291,  note  ;  effect 
of  truck  system  on  economic 
character,  308 

Dynamic  principle  required  in 
Theory  of  Wages,  109  ;  secured 
directly  or  indirectly,  109 


£ 


Economy  of  high  wages  estab- 
lished by  Factory  Acts,  102  ; 
of  low  wages  a  natural  infer- 
ence from  Mercantilism,  103  ; 
of  high  wages  and  of  low 
wages  reconciled,  107-109 

Efficiency  depends  on  mental 
and  moral  qualities,  52  ;  higher 
wages  and,  82,  83 ;  output  as 
standard  of,  88  ;  effect  of 
trades-unions,  263 ;  methods 
of  remuneration,  296 

Emigration  and  trade  mobility, 
igi-196 ;  British  Emigrants 
Office  on,  191  ;  Prof.  Mayo- 
Smith,  ig3  ;  Mr.  Schloss,  195  ; 
Dr.  Geffchen  on  causes  of, 
227,  238  ;  J.  S.  Mill,  230  ;  the 
balance-sheet  of  emigration, 
227-234  ;  emigration  as  a  na- 
tional investment,  228-231  ; 
effect  of  immigration  on 
natural  increase  of  United 
States,  231  ;  gijin  by  immigra- 
tion not  to  be  accurately  meas- 
ured, 233  ;  depopulation,  234- 
236  ;  British  industry  and  emi- 
gration, 239 ;  United  States 
industry     and     immigration, 


\r- 


I  .-. ) 


Index. 


315 


)ility, 
jrants 
|»layo- 

195 ; 

IS   of, 

the 
ition, 
la  na- 

[231  ; 
on 

lited 
jigra- 

leas- 

1234- 
lemi- 
jtates 
Ition, 


239-242  ;  quality  of  emi- 
grants, 243,  244  ;  emigra- 
tion and  the  labor  market, 
245  ;  immigration  and  wages, 
245-253  ;  displacing  of  native 
laborers,  249  ;  wages  and 
standard  of  living  of  immi- 
grants, 250-253 

Employer's  estimate,  economic, 
153  ;  includes  two  factors — 
amount  of  product  and  re- 
sources of  employer,  158  ; 
variations  in,  161  ;  when  non- 
economic,  161 

Evolution,  doctrine  applied  to 
wages  theories,  128 

Exodus  from  Canada,  205,  220- 
222,  235 

Experiment,  industrial,  involved 
in  first  version  of  productivity 
theory,  83-86 


Factory  Acts  established  econ- 
omy of  high  wages,  102  ;  un- 
expected economic  justifica- 
tion ol,  104 

Family  the  wage-earning  unit, 
28,  251-252  ;  Gould  on,  250 

Fluctuations  of  industry,  effect 
of,  on  the  standard  of  comfort, 

Franklin  (Benj.),  on  artificial 
lower  limit  of  wages,  152  ; 
on  the  population  of  United 
States,  236 


Garnier,  possibility  of  mobility 
may  reduce  actual  mobility, 
214;  produce  payments,  287; 
English  truck  system,  28S,  note 

Geffchen  (Dr.),  agr.irian  causes 
of  emigration,  227  ;  causes  of 
German  emigration,  238 

Gonner,  the  misrepresentations 
of  Ricardo,  17 


Gould,  Social  Condition  of  Labor, 

250 
Gross  and  net  returns,  10 
Gunton,  subsistence  theory  as 
method  of  raising  wages,  7  ; 
on  family  as  wage-earning  unit, 
28  ;  version  of  subsistence  the- 
ory. 33-40 ;  on  Walker's  re- 
sidual theory,  116 

H 

Ilardie  (Keir),  the  standard  of 
living  and  wages,  30 

Hired  laborers  only  considered 
in  Wages-Fund  Theory,  48 

Hobson,  trade-union  policy,  278 

Howell,  trade-unions  and  mobil- 
ity, 179 


Income,  national,  wages  paid 
out  of,  55  ;  of  society,  who 
disposes  of  it,  63 

Indifference  theory  of  wages, 
Senior  and  Brassey  on,  103 

Industrial  revolution,  effects  of, 
21,  108 ;  conditions  and  the 
subsistence  theory,  21 ;  and 
mobility,  199 

Intelligence  required  for  use  of 
machinery,  100 

Ireland,  temporary  migration 
from,  223 ;  emigration,  237, 
239  ;  diagram  opp.  241 

Italy,  temporary  migration,  224  ; 
causes  of  emigration  from, 
242  ;  objection  to  immigrants 
from,  251 


Labor,  vaiying  intensities  of,  15  ; 
necessities  of,  39  ;  not  a  pas- 
sive factor  in  wages  bargain, 
51  ;  dependence  of.  on  em- 
ployer, exaggerated  in  Wages- 
Fund  Theory,  59  ;  luxurious 
expenditure    and   demand  for 


r 


316 


Index. 


If 


\ 


I  I 


ii.'i 


Labor —  Con  tin  tied. 
labor,  69  ;  the  supply  price  of, 
73  ;  disabilities  of,  Adam  Smith 
on,  75  ;  commodity  with  a  sup- 
ply price,  76  ;  cost  and  wages 
cost,  105  ;  contribution  of,  to 
production,  iig-126  ;  two  es- 
timates of  utility  enter  into 
determination  of  vahie,  135  ; 
disutility  of,  and  remoteness  of 
exertion,  137  ;  disutility  makes 
a  personal  commodity,  138  ; 
value  of,  determined  between 
two  estimates,  140-144 ;  dis- 
utility of,  increasing  or  de- 
creasing? 148  ;  positive  and 
negative  disutilities  of,  149 ; 
importance  to,  of  sound  bank- 
ing system,  159 ;  disposable 
fund  of,  185-189  ;  not  a  sim- 
plified case  of  value,  72,  256, 
257 ;  trade-unions  and  disa- 
bilities of  labor,  265-268 ; 
methods  of  remuneration  and 
disutility  of,  283  ;  methods  of 
remuneration  and  disabilities 
of  labor,  303,  307 

Leclaire,  172,  188 

Limits  of  wages,  140-142,  153- 
158;  the  debatable  ground, 
140 ;  to  pass  upper  limit  re- 
quires distributive  readjust- 
ment, 153,  257,  263  ;  effect  of 
trade-unionism  on  limits,  263- 
265 

Localization  of  industry,  effect 
on  migration,  209,  223 

M 

Macdonald  {Mr.  C.  O.),  on  truck 
system  in  Cape  Breton,  291  ; 
truck  system  a  crime  against 
honest  currency,  302,  note 

Machinery,  intelligence  required 
for  use  of,  100 

Mallock,  Labor  and  the  Popular 
Welfare,  100  ;  application  of 
method  of  residue,  123 


Malthus,  influence  of,  on  de- 
velopment of  Wages-Fund 
Theory,  46 

Marginal  laborer,  Gunton  and 
Marshall  on  the,  33-35 

Market  and  natural  wages,  ac- 
cording to  Ricardo,  41 

Marshall  (Prof.),  on  marginal 
laborer,  35  ;  Mill's  theory  of 
distribution,  71,  note ;  trade 
mobility,  181 ;  on  strikes,  280 

AlcCulloch,  trade  mobility  and 
wages,  196 

Mercantilism,  influence  of,  on 
wages  theory,  103 

Metayer  system,  in  United 
States,  2SS,  note 

Method  of  concomitant  varia- 
tions, 24,  81-83  ;  of  residues, 
109-119 

Migration  and  emigration,  vol- 
umes compared,  201-203  \  * 
labor  factor  of  decreasing  im- 
portance, 203-215  ;  British 
Census  Report,  on,  203,  note ; 
Prof.  Wilcox  on,  204  ;  Cana- 
dian migration,  205,  206 ; 
modern  restrictions,  207  ;  Cor- 
liss Bill,  208,  note ;  causes  of 
decline,  209,  213-215;  prop- 
erty owning,  effect  of,  on,  209- 
213;  possibility  of,  has  levelled 
up  wages,  213  ;  in  Ontario  and 
Quebec,  215;  an  economic 
movement,  215 ;  of  women, 
216  ;  an  adult  movement,  217  ; 
law  of  migration  by  stages, 
218-222  ;  temporary  and  sea- 
sonal, 223-226 

Mill,  recantation  of  the  Wages- 
Fund  Theory,  4  ;  treatment  of 
particular  wages,  44  ;  attitude 
of,  towards  economic  history, 
70  ;  regards  labor  as  the  com- 
modity, 70  ;  theory  of  distribu- 
tion. Prof.  Marshall  on,  71, 
note  ;  disutility  of  labor,  149 

Minimum  of  subsistence,  physio- 
logical and  industrial,  17  ;  the 


Index, 


317 


ges, 
sea- 

jes- 

tof 

ude 

ory, 

om- 

bu- 

71. 

^9 
rsio- 

the 


standard  of  living  as  minimum 
wages,  40 
Mobility  of  labor,  A.  Smith  on, 
174,  182;  Dr.  Smart,  175; 
Prof.  Cairnes,  182,  185  ;  neces- 
sary postulate  of  Wages-Fund 
Theory,  177  ;  trade- unions 
and,  177-180;  ethical  objec- 
tions to,  Howell  on,  179;  trade 
mobility  and  place  mobility, 
181  ;  trade  mobility  and  degra- 
dation of  labor,  I  S3  ;  tendency 
of  place  mobility  to  promote 
trade  mobility,  189-196  ;  in- 
fluence of  Industrial  Revolu- 
tion on,  199,  230 

N 

Necessities  of  the  laborer,   39, 

151,  266 
Net  return,  does  labor  receive  ? 

12-15 
Nicholson,  on  profit-sharing,  100, 

note  ;  on  strikes,  280 


Ontario:  Bureau  of  Statistics,  210, 
287,  300  ;  migration  from,  215 

Output,  and  wages,  Brentano  on, 
87  ;  as  the  standard  of  effi- 
ciency, 88-89,  ^"<i  wages, 
comparative  statistics  of,  90, 
gi  ;  increment  of,  due  to  labor, 
q6  ;  proportion  going  to  labor 
diminishing,  97-100  ;  and 
labor,  Mr.  Malloch  on,  100 

Ownership  of   the  wages  fund 
57-64 


Piece  work,  trade-unions  and, 
269  ;  and  disutility  of  labor, 
282 ;  piece  wages  in  United 
States,  283  ;  effect  on  effi- 
ciency, 297-299 

Position  of  the  laborer,  indepen- 
dence exaggerated  by  Produc- 
tivity Theory,  4  ;  Wages-Fund 


Theory,  59  ;  contribution  to 
production,  121 

Potter  (Miss  Beatrice),  on  em- 
ployer's estimate,  162 

Product  of  industry  due  to  co- 
operation, 121-123 

Product  sharing,  Mr.  Gamier  on, 
287-289  ;  metayer  system  in 
United  States  and  Canada, 
288,  note 

Production  an  extended  process, 
53-55  ;  contribution  of  labor 
to,  not  physical  but  economic, 
119-126 

Productivity  Theory  and  the  in- 
dependence of  labor,  4  ;  two 
versions  of,  81  ;  the  first  ver- 
sion involves  an  industrial  ex- 
periment, 83  ;  the  second  ver- 
sion relies  on  competition,  95  ; 
neglects  second  factor  in  em- 
ployer's estimate,  158 

Profit-sharing,  Prof.  Nicholson 
on,  100,  note  ;  attitude  of  ad- 
vocates to  wage  system,  150; 
attitude  of  trade-unionism  to- 
wards, 269  ;  and  disutility  of 
labor,  282  ;  effect  on  efficiency, 
297-299 

Property  owning  and  mobility, 
209-213 

Protective  policy,  aim  of,  201, 
note 

Public  opinion  as  a  factor  in 
wages  bargain,  171 


RavensteirC s  law  of  migration  by 
stages,  218-222 

Remuneration,  industrial,  meth- 
ods of,  166,  chap.  viii. 

Residues,  method  of,  in  economic 
theory,  109-1 19  ;  rent  as  a 
residual  share,  110-113  ;  profits 
as  a  residual  share,  113;  in 
economics  implies  false  theory 
of  economic  history,  113;  sanc- 
tioned by  Adam  Smith,  114; 


3>8 


Index. 


\ 


\ 


■;i   I 


m  ■•■ 


wages  as  residual,  115  ;  I'rof. 
Walker  on  wages  as  residual, 
115-117;  Mr.  Mallock's  ap- 
plication of,  123 

Restrictions  on  mob'lity,  207, 
20S  ;  Corliss  Bill  and  contract 
labor  law,  208,  note  ;  military, 
238 

Rictirdo,  exceptions  to  law  of 
natural  wages,  41  ;  definition 
of  capital,  45;  standard,  Mr. 
Conner  e-'qilaiiis,  17  ;  on  rent 
and  profiLa  as  residual,  110-113 

Roscher^  on  Wages  Fund,  159 


Schloss,  Methods  of  Industrial 
Remuneration,  150,281  ;  trade 
mobility,  195 ;  lump-of-work 
fallacy,  263 

Senior  and  the  Factory  Acts, 
102  ;  and  Lord  Brassey,  indif- 
ference theory  of  wages,  103 

Swart  (Dr.),  the  mobility  of  la- 
bor, 176:  on  value,  254,  255 

Smith  (Adam),  the  theory  of  dis- 
tribution, 7  ;  criticism  of  sub- 
sistence theory,  23  ;  summer 
and  winter  wages,  23  ;  wages 
paid  out  of  capital,  53  ;  disa- 
bilities of  labor,  75  ;  immo- 
bility of  labor,  175,  182 

Smith  (H.  Llewellyn),  Booth's 
Life  and  Labor,  190,  215,  220 

Smith  (Prof.  Mayo-),  see  emigra- 
tion and  migration 

Standard,  of  subsistence  and  the 
principle  of  population,  18  ;  of 
comfort  and  the  fluctuations  of 
industry,  ig  ;  of  efficiency  out- 
put as,  88-90 

Substitution,  law  of,  as  effecting 
claimants  in  distribution,  123, 
125,  156,  158 

Summer  and  winter  wages,  in 
Canada,  23,  note  ;  Adam  Smith 
on,  23 


Supply  of  labor  not  determinate, 
47-51  ;  supply  price  of  labor, 
73-76 


Taussig  (Prof.),  on  capital,  56 
Taylor  (Sedley),  the  degradation 

of  the  wage  earner,  150 
Trade-unionism  as  collective  bar- 
gaining,   167,    268-271;    as  a 
substitute  for  character,   168  ; 
fallacy  of  lump  of  work,   89, 

263  ;  effect  on  limits  of  wages, 

264  ;  mainly  a  method  of  bar- 
gaining, 264  ;  object  of  trade- 
union  policy,  267  ;  legal  locus 
standi,  270;  numerical  strength, 
271,  note;  the  problem  of  dis- 
cipline, 272  ;  must  rely  mainly 
on  moral  forces,  274  ;  obstacles 
in  the  way  of  discipline,  275- 
277  ;  cardinal  maxim  of  policy, 
277,  27S  ;  balance-sheet  of  a 
strike,  279 ;  its  ideal  method 
of  remuneration,  305 

Truck  system,  160,  289-296  ;  the 
sweated  wage,  290  ;  compara- 
tive prices,  293 ;  and  irregu- 
larity of  employment,  294  ; 
compared  with  credit  system, 
295  ;  and  wages  fund,  299-303; 
and  mobility,  305  ;  effect  on 
economic  character,  303,  311  ; 
and  financial  conditions,  302, 
note,  309 


U 


United  States,  wages  and  the  cost 
of  living,  25  ;  share  allotted  to 
labor,  98  ;  law  of  substitution 
in,  125  ;  Benjamin  Franklin  on 
law  of  wages  in,  152  ;  Census 
Report,  194,  195;  Prof.  Wilcox 
on  immigration,  204  ;  Cana- 
dian immigrants  into,  205,  221  ; 
Corliss  Bill,  208,  note  ;  tem- 
porary immignnits,    224-226  ; 


ir 


Index. 


319 


migration  and  natural  rate 
of  increase,  231  ;  immigration 
and  waj^es,  245-253  ;  piece 
wages  in,  2S3  ;  metayer  system 
in,  288,  note 


Value,  theory  of,  72,  note,  254, 

257  ;  labor  a  complicated  case, 

72,  256,  257 
Variations  in  subsistence  theory, 

()  ;  in  intensity  of  labor,   15  ; 

in  the  employer's  estimate,  i6r 

W 

Wages,  theories,  development  of, 
3  ;  as  an  element  of  cost,  9 ; 
a  gross  return,  11  ;  and  the  cost 
of  living,  24,  25  ;  of  women,  25- 
28  ;  the  family  the  wage-earn- 
ing unit,  27,  251,  252  ;  gener- 
al, and  per  head,  42  ;  source  of 
wages,  45,  4O,  53-f'9  ;  paid  out 
of  income,  55,  56,  and  output, 
Brentano  on,  87  ;  and  output, 
comparative  statistics,  88;  econ- 
omy of  high  and  economy  of 
low,  loi-ioS  ;  the  indifference 
theory  of,  103  ;  cost  and  labor 
cost,  105 ;  dynamic  principle 
thought  necessary  in  theory  of, 
109 ;  method  of  residues  ap- 
plied to  theory  of,  107-119; 
doctrine  of  evolution  and  criti- 
cism of  theories  of,  128  ;  de- 
fects of  the  historic  theories, 
129-135  ;  Ml.  Sedley  Taylor 
on  degradation  in  earning, 
150;  artificial  lower  limit 
to,  Henjamin  Franklin  on, 
152  ;  bargaining,  influence  of 
legislation  and  public  opinion 
on,  117,  173;  and  trade  mo- 
bility, 183  ;  McCulloch  on, 
196  ;  levelled  up  by  effect  of 


property  owning,  209-213  ;  im- 
proved communications,  213- 
215  ;  piece  wages,  2S3  ;  weekly 
payments  of,  284  ;  deferred 
payment  of,  286 
Wages  Fund  :  and  Capital,  53-55; 
ownership  of,  57  ;  not  abso- 
lutely fixed  and  predetermined, 
60-69  »  sliould  include  credit, 
61  ;  amount  of,  65  ;  and  luxu- 
rious expenditures,  69 ;  a 
"  Zwischen -reservoir,"'  159; 
increased  by  some  methods  of 
remuneration,  159,  297-303 
Wages-Fund  Theory,  Mill's  re- 
cantation of,  4 ;  problem  of, 
43;  formulated  in  three  propo- 
sitions, 47,  53,  69 ;  considers 
hired  labor  only,  48  ;  a  theory 
mainly  of  the  demand  for  labor, 
52;  and  competition,  69; 
critics  usually  consider  money 
wages  only,  79  ;  and  rent  as 
residual  share,  112  ;  a  recon- 
ciliation of  subsistence  and  pro- 
ductivity theories,  133  ;  the 
fundamental  error  of,  134  ;  but 
the  most  adequate  of  the  his- 
toric theories,  135  ;  over-em- 
phasizes the  second  element  of 
employer's  estimate,  158 

Walker  (Prof.),  residual  method 
applied  to  wage  theory,  115- 
118  ;  on  mobility,  174,  188, 
189 

Wicks  (Mr.  F.),  on  trade-unions, 
271,  note 

Wilcox  ( Prof.),  on  migration,  204 

Women,  wages  of ,  25-28  ;  migra- 
tion of,  216;  influence  on  trade- 
unionism,  275 

Wfight  (Carroll),  wages  and  cost 
of  living  in  United  States,  25  ; 
piece  wages  in  United  States, 
283 


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ii. 


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